<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended September 30, 1997
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
__________________________________ to _____________________________
Commission File Number 0-19390
---------------
TREADCO, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
Delaware 7534 and 5531 71-0706271
- ------------------------------------ --------------------------------- -----------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
1101 South 21st Street
Fort Smith, Arkansas
72901
(501) 788-6400
---------------------------------
(Address, including zip code,
and telephone number, including
area code, of registrant's
principal executive offices)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 15, 1997
- ----------------------------- -------------------------------
Common Stock, $.01 par value 5,072,255 shares
1
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TREADCO, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations --
For the Three and Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements --
September 30, 1997 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
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2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TREADCO, INC.
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
-------------------------------------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ -- $ 15,804
Accounts receivable:
Trade receivables, less allowances for
doubtful accounts (1997 -- $1,785,345;
1996 -- $1,161,266) ....................................... 23,440,873 18,310,397
Other ...................................................... 6,884,891 6,011,067
Due from affiliates ............................................ 163,490 154,120
Inventories - Note C ........................................... 28,288,924 30,043,877
Prepaid expenses ............................................... 73,031 155,483
Federal and state income taxes refundable ...................... 895,832 1,625,935
Deferred income taxes .......................................... 1,512,326 1,512,326
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ....................................... 61,259,367 57,829,009
PROPERTY, PLANT AND EQUIPMENT
Land............................................................ 4,000,877 4,065,127
Structures...................................................... 13,227,413 12,980,600
Retreading and other equipment ................................. 31,923,045 29,711,944
- ------------------------------------------------------------------------------------------------------------------------
49,151,335 46,757,671
Less allowances for depreciation ............................... (16,754,773) (13,571,967)
- ------------------------------------------------------------------------------------------------------------------------
32,396,562 33,185,704
OTHER ASSETS
Goodwill, less amortization
(1997 -- $3,793,309; 1996 -- $3,446,815) ...................... 12,809,651 13,156,142
Noncompete agreements, less amortization
(1997 -- $1,066,771; 1996 -- $870,832)......................... 239,479 435,417
Deferred income taxes .......................................... -- 200,052
Other .......................................................... 611,288 609,469
- ------------------------------------------------------------------------------------------------------------------------
13,660,418 14,401,080
- ------------------------------------------------------------------------------------------------------------------------
$ 107,316,347 $ 105,415,793
========================================================================================================================
</TABLE>
3
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TREADCO, INC.
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------------------------------------------
(UNAUDITED) (NOTE)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft ................................................. $ 417,671 $ --
Trade accounts payable ......................................... 21,693,048 14,546,576
Due to affiliate ............................................... 995,931 959,174
Accrued salaries, wages and other expenses ..................... 8,183,797 6,635,173
Current portion of long-term debt .............................. 2,248,439 1,645,085
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES .................................. 33,538,886 23,786,008
LONG-TERM DEBT, less current portion ................................ 13,810,320 19,610,482
OTHER LIABILITIES ................................................... 85,188 71,689
DEFERRED INCOME TAXES ............................................... 64,667 --
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share --
authorized 2,000,000 shares; none issued ..................... -- --
Common stock, par value $.01 per share --
authorized 18,000,000 shares; issued and
outstanding 5,072,255 shares ................................. 50,723 50,723
Additional paid-in capital ..................................... 45,623,346 45,623,346
Retained earnings .............................................. 14,143,217 16,273,545
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ................................. 59,817,286 61,947,614
COMMITMENTS AND CONTINGENCIES -- Note E
- ---------------------------------------------------------------------------------------------------------------------
$ 107,316,347 $ 105,415,793
=====================================================================================================================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to consolidated financial statements.
4
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TREADCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
-------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES
Non-affiliates ............................... $ 46,168,823 $ 39,487,583 $ 119,276,915 $ 106,605,819
Affiliates ................................... 600,215 633,629 1,839,484 1,763,526
- ------------------------------------------------------------------------------------------------------------------------
46,769,038 40,121,212 121,116,399 108,369,345
COSTS AND EXPENSES
Materials and cost of new tires .............. 31,368,557 28,814,207 82,423,691 78,717,067
Salaries and wages ........................... 7,313,915 6,231,248 20,140,152 17,031,374
Depreciation and amortization ................ 1,447,887 1,214,313 4,146,063 3,076,961
Administrative and general ................... 5,700,950 4,391,151 15,668,126 12,820,540
Amortization of goodwill ..................... 115,498 115,498 346,492 346,492
- ------------------------------------------------------------------------------------------------------------------------
45,946,807 40,766,417 122,724,524 111,992,434
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) ......................... 822,231 (645,205) (1,608,125) (3,623,089)
OTHER INCOME
Interest income .............................. 12,179 4,379 31,406 23,490
Gain on asset sales .......................... 243,148 1,069,429 245,754 1,206,416
Other ........................................ 31,246 32,091 156,907 94,246
- ------------------------------------------------------------------------------------------------------------------------
286,573 1,105,899 434,067 1,324,152
OTHER EXPENSES
Interest ..................................... 328,430 294,753 974,022 613,206
Amortization of noncompete agreements ........ 65,312 65,312 195,937 195,937
- ------------------------------------------------------------------------------------------------------------------------
393,742 360,065 1,169,959 809,143
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES................ 715,062 100,629 (2,344,017) (3,108,080)
FEDERAL AND STATE INCOME TAXES
(CREDIT)
Current ...................................... 413,426 205,352 (1,087,079) (757,086)
Deferred ..................................... (119,179) (254,717) 264,719 (425,036)
- ------------------------------------------------------------------------------------------------------------------------
294,247 (49,365) (822,360) (1,182,122)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ............................... $ 420,815 $ 149,994 $ (1,521,657) $ (1,925,958)
========================================================================================================================
NET INCOME (LOSS) PER SHARE
========================================================================================================================
Note -- D..................................... $ 0.08 $ 0.03 $ (0.30) $ (0.38)
========================================================================================================================
AVERAGE SHARES OUTSTANDING ...................... 5,122,136 5,073,707 5,072,255 5,072,255
========================================================================================================================
CASH DIVIDENDS PAID
========================================================================================================================
PER COMMON SHARE ............................... $ 0.04 $ 0.04 $ 0.12 $ 0.12
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
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TREADCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
-------------------------------------------
(UNAUDITED)
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OPERATING ACTIVITIES
Net loss ....................................................... $ (1,521,657) $ (1,925,958)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization .............................. 4,146,063 3,076,961
Amortization of goodwill ................................... 346,491 346,492
Amortization of noncompete agreements ...................... 195,938 195,937
Provision for losses on accounts receivable ................ 1,920,463 1,048,041
Provision (credit) for deferred income taxes ............... 264,719 (425,036)
Gain on asset sales ........................................ (245,754) (1,206,416)
Changes in operating assets and liabilities:
Receivables .............................................. (7,924,763) (4,663,871)
Inventories and prepaid expenses ......................... 1,837,405 3,962,877
Federal and state income taxes refundable................. 730,103 --
Other assets ............................................. (1,819) (1,599,750)
Trade accounts payable and accrued expenses............... 8,695,096 9,098,889
Due to/from affiliates ..................................... 27,387 267,579
Other liabilities .......................................... 13,499 14,219
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .............................................. 8,483,171 8,189,964
INVESTING ACTIVITIES
Purchases of property, plant and equipment ..................... (1,677,354) (8,600,901)
Proceeds from asset sales ...................................... 799,876 2,179,042
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES ............................... (877,478) (6,421,859)
FINANCING ACTIVITIES
Borrowings under revolving credit facility ..................... 23,235,000 19,410,000
Payments under revolving credit facility ....................... (29,135,000) (22,610,000)
Payments of other long-term debt ............................... (1,530,497) (279,136)
Dividends paid ................................................. (608,671) (515,881)
Net increase in cash overdrafts ................................ 417,671 607,011
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES ............................... (7,621,497) (3,388,006)
- ------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS .............................................. (15,804) (1,619,901)
Cash and cash equivalents at beginning of period ............... 15,804 1,619,901
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................................................. $ -- $ --
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
6
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TREADCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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NOTE A -- ORGANIZATION
Treadco, Inc. (the "Company") was organized in June 1991 as the successor
to the truck tire retreading and new truck tire sales business previously
conducted and developed by a wholly owned subsidiary of Arkansas Best
Corporation ("ABC"). In September 1991, the Company completed an initial public
offering. At September 30, 1997, ABC owned approximately 46% of the Company's
outstanding shares.
NOTE B -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine months ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the Company's
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
NOTE C -- INVENTORIES
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<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
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<S> <C> <C>
New tires and finished retreaded tires .................................... $ 22,403,480 $ 23,802,112
Materials and supplies .................................................... 5,885,444 6,241,765
- -------------------------------------------------------------------------------------------------------------------
$ 28,288,924 $ 30,043,877
===================================================================================================================
</TABLE>
7
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TREADCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
NOTE D - NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated by dividing net income (loss)
by the average shares of common stock of the Company and common stock
equivalents outstanding during the period. Common stock equivalents represent
the dilutive effect of the assumed exercise of certain outstanding stock
options. During a loss period, the assumed exercise of outstanding in-the-money
stock options have an antidilutive effect.
The calculation of the average common shares outstanding is as follows:
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE COMMON SHARES
OUTSTANDING
Common share outstanding................. 5,072,255 5,072,255 5,072,255 5,072,255
- -------------------------------------------------------------------------------------------------------------------
Common equivalents - options ............ 49,881 1,452 -- --
5,122,136 5,073,707 5,072,255 5,072,255
===================================================================================================================
</TABLE>
NOTE E -- LITIGATION
Other than as discussed below, the Company is not a party to any pending
legal proceedings which management believes to be material to the results of
operations, cash flows or the financial condition of the Company.
On October 30, 1995, the Company filed a lawsuit in Arkansas State Court,
alleging that Bandag, Inc. ("Bandag"), the Company's former retread franchisor,
and certain of its officers and employees violated Arkansas statutory and common
law in attempting to solicit the Company's employees to work for Bandag or its
competing franchisees and attempting to divert customers from Treadco. At the
Company's request, the Court entered a Temporary Restraining Order barring
Bandag, Treadco's former officers J. J. Seiter, Ronald W. Toothaker, and Ronald
W. Hawks and Bandag officers Martin G. Carver and William Sweatman from
soliciting or hiring Treadco's employees to work for Bandag or any of its
franchises, from diverting or soliciting Treadco's customers to buy from Bandag
franchisees other than Treadco, and from disclosing or using any of Treadco's
confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its proceedings pending a decision by the United States District
Court, Western District of Arkansas, on a Complaint to Compel Arbitration filed
by Bandag in the Federal District Court on November 8, 1995.
The Federal District Court has ruled that under the terms of the Company's
franchise agreements with Bandag, all of the issues involved in the Company's
lawsuit against Bandag are to be decided by arbitration. The Company and Bandag
are conducting discovery in preparation for the arbitration hearing. The
arbitration hearing is expected to be held during 1998.
8
<PAGE> 9
NOTE F -- LONG-TERM DEBT
The Company is a party to a revolving credit facility with Societe Generale
(the "Credit Agreement") providing for borrowings of up to the lesser of $20
million or the applicable borrowing base. At September 30, 1997, the Company had
$4.4 million borrowed under the Credit Agreement.
The Credit Agreement was amended and restated on September 30, 1997,
primarily to extend the termination date until September 30, 2001, to revise
certain financial covenants and to revise the Company's interest rate on
advances.
Credit Agreement advances bear interest at one of the following rates, at
the Company's option: (a) LIBO Rate or (b) the Adjusted Prime Rate. LIBO Rate
advances bear an interest rate per annum equal to the Eurodollar rate offered by
Societe Generale, adjusted for Federal Reserve Board reserve requirements, plus
the Applicable Margin; provided that the LIBO Rate shall in no event exceed the
highest lawful rate. The Applicable Margin is determined as a function of the
ratio of the Company's indebtedness to its earnings before interest, taxes,
depreciation and amortization. An Adjusted Prime Rate advance bears an interest
rate equal to the higher of (i) the prime rate offered by Societe Generale or
(ii) one-half percent (1/2%) plus the Federal Funds Rate; provided that the
Adjusted Prime Rate shall in no event exceed the highest lawful rate. At
September 30, 1997, the weighted average interest rate on advances under the
Credit Agreement was 7.1%.
The Company's borrowing base under the Credit Agreement is equal to 80% of
its eligible accounts receivable and 50% of its inventory consisting of tire
casings, new tires and finished retreads. At September 30, 1997, the borrowing
base was $30.9 million.
The Credit Agreement contains various covenants which limit, among other
things, dividends, disposition of receivables, indebtedness and investments, as
well as requiring the Company to meet certain financial tests. The Company was
in compliance with the covenants at September 30, 1997.
NOTE G -- RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for computing primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
calculation of earnings per share is not expected to be material.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Statement is effective for the
Company in 1998. The Company does anticipate that adoption of this Statement
will have a material impact on the current presentation of its financial
statements.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SIGNIFICANT EVENTS
In August 1995, Bandag, Incorporated ("Bandag"), the Company's primary
tread rubber supplier and franchiser, informed the Company that it would not
renew the Company's eight franchise agreements which expired in the summer of
1996. The Company subsequently entered into an agreement with Oliver Rubber
Company ("Oliver") to be a supplier of equipment and related materials for the
eight franchised locations and any other Company facility which ceased being a
Bandag franchised location. Bandag subsequently advised the Company that unless
the Company used the Bandag retread process exclusively, Bandag would not renew
any of the Company's remaining franchise agreements when they expired.
During 1996, the Company converted all of its production facilities that
were operated as Bandag retread franchises to Oliver licensed facilities. The
conversion was completed in phases throughout the first three quarters of 1996
with approximately one-third of its production facilities converted each
quarter.
The conversion resulted in up to two lost production days during each
change, some short-term operational inefficiencies and time lost as production
employees familiarized themselves with the new equipment.
RESULTS OF OPERATIONS
The Company is affected by seasonal fluctuations, which influence the
demand for retreads and new tires. The Company generally experiences reduced
demand for retreads and new tires in the first quarter due to more difficult
driving and tire maintenance conditions resulting from inclement weather. The
Company is also subject to cyclical national and regional economic conditions.
The following table sets forth for the periods indicated a summary of sales
by category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
% %
1997 1996 INCREASE 1997 1996 INCREASE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES
Retread ................ $ 18,536,942 $ 15,838,925 17.0% $ 49,029,943 $ 45,721,900 7.2%
New tires .............. 23,817,732 20,908,178 13.9 60,881,139 53,706,978 13.4
Service ................ 4,414,364 3,374,109 30.8 11,205,317 8,940,467 25.3
- -------------------------------------------------------------------------------------------------------------------
TOTAL ..................... $ 46,769,038 $ 40,121,212 16.6% $ 121,116,399 $ 108,369,345 11.8%
===================================================================================================================
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
The following table sets forth for the periods indicated a summary of the
Company's operating costs and expenses as a percentage of sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
COSTS AND EXPENSES
Materials and cost of new tires .................... 67.1% 71.9% 68.1% 72.7%
Salaries and wages ................................. 15.6 15.5 16.6 15.7
Depreciation and amortization ...................... 3.1 3.0 3.4 2.8
Administrative and general ......................... 12.2 10.9 12.9 11.8
Amortization of goodwill ........................... 0.2 0.3 0.3 0.3
- -------------------------------------------------------------------------------------------------------------------
98.2% 101.6% 101.3% 103.3%
===================================================================================================================
</TABLE>
Three Months Ended September 30, 1997 as Compared to Three Months Ended
September 30, 1996
Sales (including sales to affiliates) for the three months ended September
30, 1997 increased 16.6% to $46.8 million from $40.1 million for the three
months ended September 30, 1996. During the three months ended September 30,
1997, the Company sold approximately 184,000 retreaded truck tires, an increase
of 16.0% from the three months ended September 30, 1996 and new tires sold
increased 13.3% to 131,000 tires. As anticipated, Bandag, Inc. continues to
target the Company's accounts which has caused difficulty in retaining the
national account business and in many cases the business retained is at lower
margins.
For the three months ended September 30, 1997, "same store" sales increased
11.9% and "new store" sales accounted for 4.7% of the increase from the 1996
third quarter. "Same store" sales include both production locations and sales
locations that have been in existence for the entire periods presented. "New
store" sales resulted from one new production facility and three new sales
locations.
Operating costs and expenses were $45.9 million for the three months ended
September 30, 1997 compared to $40.8 million during the three months ended
September 30, 1996. For the three months ended September 30, 1997 the Company
had operating income of $822,000 compared to an operating loss of $645,000
during the three months ended September 30, 1996. The Company had net income of
$421,000, or $.08 per share, compared to net income of $150,000, or $.03 per
share during the three months of September 30, 1996. During the three months
ended September 30, 1996, the Company realized a $1.1 million gain on the sale
of assets related to the conversion to a new equipment and raw material
supplier.
Operating costs and expenses as a percent of sales were 98.2% for the three
months ended September 30, 1997 compared to 101.6% for the three months ended
September 30, 1996. Materials and cost of new tires as a percent of sales
decreased to 67.1% for the three months ended September 30, 1997 from 71.9%
during the three months ended September 30, 1996, resulting primarily from lower
tread rubber costs with Oliver and lower new tire costs. Administrative and
general costs as a percent of sales increased to 12.2% for the three months
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
ended September 30, 1997 compared to 10.9% for the three months ended September
30, 1996. The increase resulted from several factors, including expenses related
to employee insurance costs and bad debt expense.
Interest expense for the three months ended September 30, 1997 was $328,000
compared to $295,000 for the three months ended September 30, 1996. The increase
resulted primarily from the increase in debt outstanding relating to equipment
purchases.
The difference between the effective tax rate for the three months ended
September 30, 1997 and the federal statutory rate resulted primarily from state
income taxes and amortization of nondeductible goodwill.
Average shares outstanding were 5.1 million for each of the three months
ended September 30, 1997 and 1996.
Nine months Ended September 30, 1997 as Compared to Nine months Ended September
30, 1996
Sales (including sales to affiliates) for the nine months ended September
30, 1997 increased 11.8% to $121.1 million from $108.4 million for the nine
months ended September 30, 1996. During the nine months ended September 30,
1997, the Company sold approximately 490,000 retreaded truck tires, an increase
of 13.5% from the nine months ended September 30, 1996 and new tires sold
increased 12.9% to 335,000 tires. The average sale price for retreads has
decreased as the Company faces new competition at many of its locations, which
has caused added pressure on selling prices. As anticipated, Bandag, Inc.
continues to target the Company's accounts which has caused difficulty in
retaining the national account business and in many cases, the business retained
is at lower margins.
For the nine months ended September 30, 1997, "same store" sales increased
5.0% and "new store" sales accounted for 6.8% of the increase from last year.
"Same store" sales include both production locations and sales locations that
have been in existence for the entire periods presented.
Operating costs and expenses were $122.7 million for the nine months ended
September 30, 1997 compared to $112.0 million during the nine months ended
September 30, 1996. For the nine months ended September 30, 1997 the Company had
an operating loss of $1.6 million compared to an operating loss of $3.6 million
during the nine months ended September 30, 1996. The Company had a net loss of
$1.5 million, or $.30 net loss per share, compared to a net loss of $1.9
million, or $.38 net loss per share during the nine months ended September 30,
1996.
Operating costs and expenses as a percent of sales were 101.3% for the nine
months ended September 30, 1997 compared to 103.3% for the nine months ended
September 30, 1996. Materials and cost of new tires as a percent of sales
decreased to 68.1% for the nine months ended September 30, 1997 from 72.7%
during the nine months ended September 30, 1996, resulting primarily from lower
tread rubber costs with Oliver. Salaries and wages as a percent of sales
increased to 16.6% for the nine months ended September 30, 1997 from 15.7%
during
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
the nine months ended September 30, 1996. The increase resulted from a greater
number of employees added for new locations and cost-of-living raises.
Depreciation and amortization expense as a percent of revenue increased to 3.4%
for the nine months ended September 30, 1997 from 2.8% for the nine months ended
September 30, 1996, primarily as a result of the acquisition during 1996 of new
retread production equipment in connection with the conversion to Oliver. During
1996, all existing precure retread equipment, some of which was fully
depreciated, was replaced with new Oliver equipment, resulting in a higher
depreciable cost basis. Administrative and general expenses as a percent of
sales increased to 12.9% for the nine months ended September 30, 1997 from 11.8%
for the nine months ended September 30, 1996. The increase resulted from several
factors, including expenses related to employee insurance costs and bad debt
expense.
Interest expense for the nine months ended September 30, 1997 was $974,000
compared to $613,000 for the nine months ended September 30, 1996. The increase
resulted primarily from the increase in debt outstanding relating to equipment
purchases.
The difference between the effective tax rate for the nine months ended
September 30, 1997 and the federal statutory rate resulted primarily from state
income taxes and amortization of nondeductible goodwill.
Average shares outstanding were 5.1 million for each of the nine months
ended September 30, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.83:1 at September
30, 1997 and 2.43:1 at December 31, 1996. Net cash provided by operating
activities was $8.5 million for the nine months ended September 30, 1997,
compared to net cash provided of $8.2 million for the nine months ended
September 30, 1996.
The Company is a party to a revolving credit facility with Societe Generale
(the "Credit Agreement") providing for borrowings of up to the lesser of $20
million or the applicable borrowing base. At September 30, 1997, the Company had
$4.4 million borrowed under the Credit Agreement.
The Credit Agreement was amended and restated on September 30, 1997,
primarily to extend the termination dated until September 30, 2001, to revise
certain financial covenants and to revise the Company's interest rate on
advances.
Credit Agreement advances bear interest at one of the following rates, at
the Company's option: (a) LIBO Rate or (b) the Adjusted Prime Rate. LIBO Rate
advances bear an interest rate per annum equal to the Eurodollar rate offered by
Societe Generale, adjusted for Federal Reserve Board reserve requirements, plus
the Applicable Margin; provided that the LIBO Rate shall in no event exceed the
highest lawful rate. The Applicable Margin is determined as a
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
function of the ratio of the Company's indebtedness to its earnings before
interest, taxes, depreciation and amortization. An Adjusted Prime Rate advance
bears an interest rate equal to the higher of (i) the prime rate offered by
Societe Generale or (ii) one-half percent (1/2%) plus the Federal Funds Rate;
provided that the Adjusted Prime Rate shall in no event exceed the highest
lawful rate. At September 30, 1997, the weighted average interest rate on
advances under the Credit Agreement was 7.1%.
The Company's borrowing base under the Credit Agreement is equal to 80% of
its eligible accounts receivable and 50% of its inventory consisting of tire
casings, new tires and finished retreads. At September 30, 1997, the borrowing
base was $30.9 million.
The Credit Agreement contains various covenants which limit, among other
things, dividends, disposition of receivables, indebtedness and investments, as
well as requiring the Company to meet certain financial tests. The Company was
in compliance with the covenants at September 30, 1997.
Management believes that, based upon the Company's current levels of
operations, capital resources, borrowings available under the Credit Agreement
and cash flow from operations will be sufficient to finance current and future
operations, including the capital expenditure program, and meet all scheduled
debt service requirements.
FORWARD LOOKING STATEMENTS
The foregoing management discussion contains forward-looking statements
that are based on current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from current expectations
due to a number of factors, including general economic conditions; competitive
initiatives and pricing pressures; availability and cost of capital; shifts in
market demand; weather conditions; government regulations; the performance and
needs of industries served by Treadco; actual future costs of operating expenses
such as the price of oil; self-insurance claims and employee wages and benefits;
and the timing and amount of capital expenditures.
14
<PAGE> 15
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is named as a defendant in legal actions,
the majority of which arise out of the normal course of its business. Other than
as discussed below, the Company is not a party to any pending legal proceeding
which the Company's management believes to be material to the results of
operations, cash flows or the financial condition of the Company. The Company
generally maintains liability insurance against risks arising out of the normal
course of its business.
On October 30, 1995, the Company filed a lawsuit in Arkansas State Court,
alleging that Bandag and certain of its officers and employees violated Arkansas
statutory and common law in attempting to solicit the Company's employees to
work for Bandag or its competing franchisees and attempting to divert customers
from Treadco. At the Company's request, the Court entered a Temporary
Restraining Order barring Bandag, Treadco's former officers J. J. Seiter, Ronald
W. Toothaker, and Ronald W. Hawks and Bandag officers Martin G. Carver and
William Sweatman from soliciting or hiring Treadco's employees to work for
Bandag or any of its franchises, from diverting or soliciting Treadco's
customers to buy from Bandag franchisees other than Treadco, and from disclosing
or using any of Treadco's confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its proceedings pending a decision by the United States District
Court, Western District of Arkansas, on a Complaint to Compel Arbitration filed
by Bandag in the Federal District Court on November 8, 1995.
The Federal District Court has ruled that under the terms of the Company's
franchise agreements with Bandag, all of the issues involved in the Company's
lawsuit against Bandag are to be decided by arbitration. The Company and Bandag
are conducting discovery in preparation for the arbitration hearing. The
arbitration hearing is expected to be held during 1998.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit 10 -- Amended and Restated Credit Agreement between
Treadco, Inc. and Societe Generale, Southwest Agency dated as of
September 30, 1997
Exhibit 27 -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TREADCO, INC.
(Registrant)
Date: November 4, 1997 /s/ David E. Loeffler
-------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer
17
<PAGE> 18
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed with this report.
EXHIBIT
NO.
10 Amended and Restated Credit Agreement between Treadco, Inc. and
Societe Generale, Southwest Agency dated as of September 30, 1997
27 Financial Data Schedule
<PAGE> 1
===============================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Between
TREADCO, INC.
and
SOCIETE GENERALE, SOUTHWEST AGENCY
Dated as of September 30, 1997
============================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
CERTAIN DEFINED TERMS
Section 1.1 Definitions . . . . . . . . . . . . . . . . . 1
Section 1.2 Accounting Terms . . . . . . . . . . . . . . . 13
Section 1.3 Miscellaneous . . . . . . . . . . . . . . . . 13
ARTICLE II
TERMS AND CONDITIONS
Section 2.1 Advances and Letters of Credit . . . . . . . . 13
Section 2.2 Interest . . . . . . . . . . . . . . . . . . . 14
Section 2.3 Fees . . . . . . . . . . . . . . . . . . . . . 15
Section 2.4 Payments and Computations . . . . . . . . . . 16
Section 2.5 Illegality . . . . . . . . . . . . . . . . . . 16
Section 2.6 Increased Costs . . . . . . . . . . . . . . . 16
Section 2.7 Taxes/Net Payments . . . . . . . . . . . . . . 17
Section 2.8 Interest on Overdue Amounts . . . . . . . . . 18
Section 2.9 Mandatory Prepayments . . . . . . . . . . . . 18
Section 2.10 Optional Prepayments . . . . . . . . . . . . . 18
Section 2.11 Compensation . . . . . . . . . . . . . . . . . 19
Section 2.12 Termination or Reduction of Commitment . . . . 19
Section 2.13 Extension of Termination Date . . . . . . . . 19
Section 2.14 Obligations Absolute . . . . . . . . . . . . . 19
Section 2.15 Limited Liability of the Bank . . . . . . . . 20
ARTICLE III
SECURITY
Section 3.1 Collateral. . . . . . . . . . . . . . . . . 22
Section 3.2 Further Assurances . . . . . . . . . . . . . . 22
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Initial Advance and Letter
of Credit . . . . . . . . . . . . . . . . . . 22
Section 4.2 Conditions Precedent for each
Advance or Letter of Credit . . . . . . . . . 23
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Organization and Authority . . . . . . . . . . 23
Section 5.2 Other Instruments . . . . . . . . . . . . . . 24
Section 5.3 Financial Condition . . . . . . . . . . . . . 24
Section 5.4 Litigation . . . . . . . . . . . . . . . . . . 24
Section 5.5 Title to Properties; Liens . . . . . . . . . . 24
Section 5.6 Tax Returns . . . . . . . . . . . . . . . . . 24
Section 5.7 Environmental . . . . . . . . . . . . . . . . 25
Section 5.8 Subsidiaries . . . . . . . . . . . . . . . . . 25
Section 5.9 Executive Office; Production Facilities . . . 25
ARTICLE VI
AFFIRMATIVE COVENANTS
Section 6.1 Information . . . . . . . . . . . . . . . . . 26
Section 6.2 Insurance . . . . . . . . . . . . . . . . . . 27
Section 6.3 Taxes . . . . . . . . . . . . . . . . . . . . 27
Section 6.4 Conduct of Business . . . . . . . . . . . . . 27
Section 6.5 Use of Proceeds . . . . . . . . . . . . . . . 27
Section 6.6 Notification of Adverse Events . . . . . . . . 28
Section 6.7 Costs . . . . . . . . . . . . . . . . . . . . 28
Section 6.8 Inspection . . . . . . . . . . . . . . . . . . 28
Section 6.9 Accounting . . . . . . . . . . . . . . . . . . 29
Section 6.10 Compliance with Legal Requirements . . . . . . 29
ARTICLE VII
NEGATIVE COVENANTS
Section 7.1 Financial Covenants . . . . . . . . . . . . . 29
Section 7.2 Dividends, Distributions, Redemptions . . . . 30
Section 7.3 Transactions with Affiliates . . . . . . . . . 30
Section 7.4 Disposition of Receivables . . . . . . . . . . 30
Section 7.5 Other Business . . . . . . . . . . . . . . . . 31
Section 7.6 Loans, Advances and Investments . . . . . . . 31
Section 7.7 Corporate Transactions . . . . . . . . . . . . 31
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII
REMEDIES
Section 8.1 Events of Default . . . . . . . . . . . . . . 31
Section 8.2 Optional Acceleration of Maturity . . . . . . 33
Section 8.3 Automatic Acceleration of Maturity . . . . . . 33
Section 8.4 Remedies . . . . . . . . . . . . . . . . . . . 33
Section 8.5 Collateral Account . . . . . . . . . . . . . . 34
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . 34
Section 9.2 Amendments and Waivers . . . . . . . . . . . . 35
Section 9.3 Participations . . . . . . . . . . . . . . . . 35
Section 9.4 Multiple Counterparts . . . . . . . . . . . . 36
Section 9.5 Successors and Assigns . . . . . . . . . . . . 36
Section 9.6 Severability . . . . . . . . . . . . . . . . . 36
Section 9.7 Interpretations . . . . . . . . . . . . . . . 36
Section 9.9 Indemnification . . . . . . . . . . . . . . . 36
Section 9.10 Confidentiality . . . . . . . . . . . . . . . 37
Section 9.11 Survival of Certain Provisions . . . . . . . . 37
Section 9.12 Governing Law . . . . . . . . . . . . . . . . 37
</TABLE>
EXHIBITS:
Exhibit "A" Form of Note
Exhibit "B" Form of Security Agreement
Exhibit "C" Form of Financing Statement
Exhibit "D" Form of Notice of Borrowing
Exhibit "E" Form of Borrowing Base Certificate
Exhibit "F" Form of Borrower's Counsel Opinion
Exhibit "G" Form of Letter of Credit Application
-iv-
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement ("Agreement"), dated as of
September 30, 1997 is by and between TREADCO, INC., a Delaware corporation
("Borrower") and SOCIETE GENERALE, SOUTHWEST AGENCY ("Bank").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto previously entered into a Credit Agreement
dated as of August 16, 1991, as modified prior to the date hereof (the
"Original Credit Agreement") pursuant to which the Bank has made Advances (as
therein defined) to the Borrower, and has issued Letters of Credit (as therein
defined) for the account of the Borrower, in each case on the terms and
conditions set forth therein;
WHEREAS, the Borrower has requested the Bank to amend the Original Credit
Agreement in order to revise certain terms thereof and the Bank has agreed to
do so on the terms and conditions set forth herein; and
WHEREAS, the parties hereto have agreed to restate the Original Credit
Agreement as amended in its entirety for clarity only, and this Amended and
Restated Credit Agreement constitutes for all purposes an amendment to the
Original Credit Agreement and not a new or substitute agreement and each
reference to an "Advance" and "Letter of Credit" herein shall mean such Advance
made and each Letter of Credit issued heretofore under the Original Credit
Agreement;
The parties hereto do hereby agree as follows:
ARTICLE I
CERTAIN DEFINED TERMS
Section 1.1 Definitions. As used in this Agreement, the following terms
will have the following meanings unless the context requires otherwise:
"ABC" shall mean Arkansas Best Corporation, a Delaware corporation.
"Acceptable Security Interest" in Collateral shall mean a security
interest and Lien (i) which exists in favor of the Bank, (ii) which is superior
to all other Liens except Permitted Liens,
-1-
<PAGE> 6
(iii) which secures the Indebtedness, and (iv) which is perfected and is
enforceable against all Persons in preference to any rights of any Person
therein (including without limitation any right of offset) except rights
arising in connection with Permitted Liens.
"Adjusted Prime Rate" shall mean, as of any day of determination thereof,
(a) for the period prior to the Effective Date, the higher of (i) the Prime
Rate or (ii) one-half percent (1/2%) plus the Federal Funds Rate, and (b) for
the period on and after the Effective Date, the sum of (A) the higher of (x)
the Prime Rate or (y) one-half percent (1/2%) plus the Federal Funds Rate, and
(B) the Applicable Margin; provided that the Adjusted Prime Rate shall in no
event exceed the highest lawful rate.
"Adjusted Prime Rate Advance" shall mean any Advance bearing interest based
on the Adjusted Prime Rate.
"Advance" shall mean any advance made by the Bank to the Borrower under
this Agreement.
"Affiliate" of any Person shall mean any individual, corporation,
partnership, joint venture, trust, association or other entity or organization
directly or indirectly controlling or controlled by or under common control
with such Person. A Person shall be deemed to control an entity if such Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of such entity, whether through the ownership of
voting securities, by contract or otherwise.
"Applicable Margin" means, at any time with respect to any Advance,
commitment fees or letter of credit fees hereunder, the following percentages
determined as a function of the ratio of the Borrower's consolidated Total
Indebtedness to its consolidated EBITDA on the last day of the immediately
preceding calendar quarter calculated for the period consisting of such
calendar quarter and the three immediately preceding calendar quarters:
<TABLE>
<CAPTION>
LIBO Letter of
Total Indebtedness/ Rate Prime Rate Commitment Credit
EBITDA Advances Advances Fees Fees
------ -------- -------- ---- ----
<S> <C> <C> <C> <C>
less than 2.00 .75% -0-% .25% .75%
less than or equal to 1.00% -0-% .375% 1.00%
2.00 - <2.50
less than or equal to 1.25% .25% .375% 1.25%
2.50 - <3.00
less than or equal to 1.50% .50% .375% 1.50%
3.00 - <4.00
less than or equal to 1.75% .75% .50% 1.75%
4.00 - <5.00
less than or equal to 2.25% 1.25% .50% 2.25%
5.0
</TABLE>
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<PAGE> 7
The foregoing ratio (a) shall be deemed to be greater than or equal to 2.50 and
less than 3.0 at all times prior to the date the Bank receives the March 31,
1998 consolidated financial statements of the Borrower and (b) shall thereafter
be determined from the consolidated financial statements of the Borrower most
recently delivered pursuant to Section 6.1(b) and certified to by an authorized
financial officer of the Borrower in accordance with Section 6.1(b). Any
change in the Applicable Margin after March 31, 1998 shall be effective upon
the date of delivery of the financial statements pursuant to Section 6.1(b) and
receipt by the Bank of the certificate of the Borrower's Chief Financial
Officer required by Section 6.1(d). If the Borrower fails to deliver any
financial statements within the times specified in Section 6.1(b), such ratio
shall be deemed to be greater than or equal to 5.00 from the date such
financial statements should have been delivered until the Borrower delivers
such financial statements to the Bank.
"Borrowing Base" shall mean the sum of (i) 80% of Eligible Receivables,
plus (ii) 50% of Eligible Inventory, as set forth on the most recent Borrowing
Base Certificate delivered by the Borrower to the Bank pursuant to Section 6.1
hereof.
"Borrowing Base Certificate" shall mean a certificate of the Borrower in
substantially the form of Exhibit "E" attached hereto executed by the Chief
Financial Officer of the Borrower.
"Business Day" shall mean a day other than a Saturday or Sunday or a legal
holiday on which the Bank is required or permitted by law to be closed for
business and in the case of LIBO Rate Advances shall also mean a day on which
dealings in Dollar deposits are carried on in the London interbank market and
on which banks are open for trading in the New York interbank eurodollar
market.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, state and local analogs, and all rules,
regulations, and requirements thereunder in each case as now or hereafter in
effect.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Collateral" shall mean the Property of the Borrower described in the
Security Agreement or any other Loan Document which secures the Indebtedness.
"Commitment" shall mean the commitment of the Bank to make Advances to the
Borrower in an aggregate amount not to exceed $20,000,000, subject to the terms
hereof, as such amount may from time to time be reduced or terminated as
provided for in Sections 8.2 and 8.3.
-3-
<PAGE> 8
"Controlled Group" means any entity which, together with the Borrower, is
considered under common control under Sections 414(b), (c), or (m) of the Code.
"Debt" of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) that portion of the obligations of such Person under
capital leases which is properly recorded as a liability on a balance sheet of
that Person prepared in accordance with GAAP, (c) any obligation of such Person
that is evidenced by a promissory note, bond, debenture or other instrument
representing an extension of credit to such Person, whether or not for borrowed
money, (d) any obligation of such Person for the deferred purchase price of
property or services, (e) all indebtedness of such Person that is secured by a
Lien on assets of such Person, whether or not that Person has assumed such
obligation or whether or not such obligation is nonrecourse to the credit of
such Person, but only to the extent of the lesser of (i) the fair market value
of the assets so subject to the Lien and (ii) the amount of the secured
indebtedness, (f) obligations of such Person arising under guaranties or
similar agreements insuring a Person against loss, and (g) liabilities in
respect of unfunded vested benefits under Plans to the extent shown as a
liability on a balance sheet of such Person which has been prepared in
accordance with GAAP.
"Default" shall mean an event or condition which, with notice or lapse of
time or both would become an Event of Default.
"Defaulted Lease" means any lease under which the Borrower, as lessee, has
not made all lease payments when due and payable as identified to the Bank in a
certificate delivered pursuant to Section 6.1(d).
"Default Rate" shall mean the lesser of (i) the maximum nonusurious rate
permitted by applicable law, and (ii) the following rates as appropriate: (a)
with respect to any overdue principal of an Advance, two percent (2%) per annum
above the interest rate otherwise applicable to such amount at the time it
became due, and (b) with respect to any overdue interest or other amounts
payable by the Borrower hereunder, two percent (2%) per annum above the
Adjusted Prime Rate.
"EBITDA" means, without duplication, for any period for which such amount
is being determined, the sum of the amounts for such period of (a) the
consolidated operating income of the Borrower and its consolidated Subsidiaries
(as shown on the Borrower's most recent Form 10-Q or 10-K) plus (b) to the
extent deducted in determining such consolidated operating income,
depreciation, amortization, and any write down prior to June 30, 1998 of tire
carcasses included in inventory not to exceed $1,500,000 in the aggregate.
"Effective Date" means the first date the conditions precedent set forth in
Section 4.1 have been satisfied, as certified by the Bank to the Borrower in
writing.
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<PAGE> 9
"Eligible Inventory" shall mean, as at any date of determination thereof,
the lesser of (i) the current market value (as determined by the Borrower based
on its posted prices) or (ii) the book value of all tire carcasses, finished
goods, and new tire inventory of the Borrower as to which there exists at such
date an Acceptable Security Interest in such Collateral; provided, however,
that there shall be excluded from Eligible Inventory any tire carcasses,
finished goods or new tire inventory of the Borrower which is located on leased
premises subject to a Defaulted Lease.
"Eligible Receivables" shall mean, as at any date of determination thereof,
the aggregate of all Receivables at such date due to the Borrower as to which
there exists at such date an Acceptable Security Interest other than the
following:
(a) any Receivables which are payable more than 120 days after the date of
original invoice therefor and any Receivables unpaid on any day more than 120
days after the date of the original invoice therefor;
(b) any Receivable due from a Subsidiary or an Affiliate (other than ABC
or any of its Subsidiaries or Affiliates) of the Borrower;
(c) Receivables due from an account debtor whose principal place of
business is located outside of the United States of America, but only to the
extent such Receivables exceed $300,000 in the aggregate;
(d) all Receivables from any one account party or Subsidiary thereof to
the extent that such Receivables exceed in the aggregate ten percent (10%) of
all otherwise Eligible Receivables; and
(e) any Receivable evidenced by an instrument or chattel paper not in the
possession of the Bank and for which possession of such instrument or chattel
paper is required under applicable law for perfection of an Acceptable Security
Interest in such Receivable.
"Environment" or "Environmental" shall have the meanings set forth in any
applicable Environmental Law.
"Environmental Claim" means any third party (including without limitation
employees and Governmental Authorities) action, lawsuit, claim, demand,
regulatory action or proceeding, order, decree, consent agreement or notice of
potential or actual responsibility or violation (including claims or
proceedings relating to health or safety of employees) which may result in the
imposition of liability under any Environmental Law.
"Environmental Law" means all Legal Requirements, arising from, relating
to, or in connection with the Environment, including without limitation CERCLA,
RCRA, and SDWA, and others
-5-
<PAGE> 10
relating to (a) pollution, contamination, injury, destruction, loss,
protection, cleanup, reclamation or restoration of the air, surface water,
groundwater, land surface or subsurface strata, or other natural resources; (b)
solid, gaseous or liquid waste generation, treatment, processing, recycling,
reclamation, cleanup, storage, disposal or transportation; (c) exposure to
pollutants, contaminants, hazardous or toxic substances, materials or wastes;
(d) safety or health of employees; or (e) the manufacture, processing,
handling, transportation, distribution in commerce, use, storage or disposal of
hazardous or toxic substances, materials or wastes.
"Environmental Permit" means any permit, license, order, approval or other
authorization under Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Reserve Percentage" shall mean, with respect to each Interest
Period, that percentage (expressed as a decimal) which is the daily average of
the percentage or percentages in effect on each day of such Interest Period as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor), for determining the maximum reserve requirement (including any
marginal, supplemental and emergency reserves) applicable to the Bank in
respect of eurodollar fundings (currently referred to in Regulation "D" as
"Eurodollar liabilities"). If no such reserves are applicable, such percentage
shall be "zero".
"Event of Default" shall mean the occurrence of any one or more of the
events referred to in Section 8.1 of this Agreement that shall not be remedied
in the period, if any, provided for therein.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for any such day
on such transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System or any of its successors.
"Financial Statements" shall mean the financial statements of the Borrower
described in Section 5.3 hereof.
-6-
<PAGE> 11
"Fund," "Trust Fund," or "Superfund" means the Hazardous Substance Response
Trust Fund, established pursuant to 42 U.S.C. Section 9631 (1982) and the Post-
closure Liability Trust Fund, established pursuant to 42 U.S.C. Section 9641
(1982), which statutory provisions have been amended or repealed by SARA, and
the "Fund," "Trust Fund," or "Superfund" are now maintained pursuant to Section
9507 of the Code.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent with the requirements
of Section 1.2.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority or instrumentality, bureau or court having jurisdiction over
the Bank or the Borrower or any of their respective assets or properties.
"Governmental Proceedings" means any action or proceedings by or before
any Governmental Authority, including, without limitation, the promulgation,
enactment or entry of any Legal Requirement.
"Hazardous Substance" means hazardous substances and hazardous wastes
identified as such pursuant to CERCLA or RCRA, and those regulated under any
other Environmental Law.
"Indebtedness" shall mean all sums owing to the Bank under or in connection
with this Agreement, the Note or any other Loan Document.
"Interest Payment Date" shall mean: (a) for any Adjusted Prime Rate
Advance, the last Business Day of each calendar month, the day such Advance is
converted to a LIBO Rate Advance, and the day such Advance is paid in full; and
(b) for any LIBO Rate Advance, the last day of any Interest Period (and with
respect to an Interest Period of six Months, the day falling three months after
the first day of such Interest Period), the day such Advance is converted to an
Adjusted Prime Rate Advance, and the day such Advance is paid in full.
"Interest Period" shall mean, with respect to each LIBO Rate Advance: (a)
initially, the period commencing on the date of such LIBO Rate Advance and
ending one, two, three or six Months thereafter as the Borrower may elect
pursuant to Section 2.1 or Section 2.2; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Revolving Loan and ending one, two, three or six Months thereafter as the
Borrower may elect pursuant to Section 2.1 or 2.2; provided, however, that (i)
whenever the last day of any Interest Period would otherwise occur on a day
other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, except that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the
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last day of such Interest Period shall occur on the next preceding Business
Day; and (ii) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulation U and
Regulation X.
"Letters of Credit" means, collectively, all standby letters of credit
issued by the Bank for the account of the Borrower hereunder.
"LIBO Rate" shall mean, with respect to each Interest Period applicable to
an Advance, a rate per annum (determined by the Bank) equal to the LIBO Rate
Basis with respect to such Advance plus (i) for any day prior to the Effective
Date, one and one quarter percent (1 1/4%), and (ii) for any day on and after
the Effective Date, the Applicable Rate; provided that the LIBO Rate shall in
no event exceed the highest lawful rate.
"LIBO Rate Advance" shall mean any Advance bearing interest based on the
LIBO Rate.
"LIBO Rate Basis" as of any day shall mean a rate per annum (rounded
upwards, if necessary, to the next higher one-one-hundredth of one percent
(.01%)) determined pursuant to the following formula (with all items being
determined as of such day):
LIBO Rate Basis = Offered Rate for such Advance 1 minus
Eurodollar Reserve Percentage
"Lien" shall mean, as applied to Collateral, any mortgage, lien, charge,
security interest or encumbrance of any kind thereon (including any conditional
sale agreement or any other title retention agreement) or any pledge thereof.
"Loan Documents" shall mean this Agreement, the Note, the Security
Agreement, and all other agreements, instruments or documents executed at any
time in connection herewith.
"Material Adverse Change" shall mean a material adverse change in the
business, financial condition, or results of operations of the Borrower.
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"Months" shall mean, with respect to an Interest Period, a period
commencing on the first day of such Interest Period to and including the
corresponding day in the last of such number of succeeding calendar months from
such first day, exclusive of the calendar month in which such Interest Period
commences, provided, however, that if such last succeeding calendar month does
not contain such a corresponding day such period shall end on and include the
last day of such last succeeding calendar month.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Note" shall mean the promissory note of the Borrower, payable to the order
of the Bank in substantially the forms of Exhibit "A" attached hereto.
"Notice of Borrowing" shall have the meaning given to such term in Section
2.1.
"Offered Rate" shall mean, with respect to any LIBO Rate Advance, the rate
per annum at which deposits are offered to the Bank in the London interbank
market with respect to Dollars, at approximately 11:00 a.m. London time two
Business Days before the first day of such Interest Period in an amount
comparable to the principal amount of such Advance and for a period of time
comparable to such Interest Period.
"Other Instruments" as to any Person shall mean the certificate of
incorporation, by-laws of, or partnership agreement pertaining to, such Person
and all agreements, instruments, documents, judgments, orders, writs,
injunctions, decrees, determinations, awards, ordinances, laws, rules,
statutes, regulations, rulings, franchises, permits or the like to which such
Person is a party or by which such Person or any assets of such Person may be
bound or affected.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Loans and Investments" shall mean loans, advances and
investments of the type described below:
(i) advances or extensions of credit on terms customary in the
industry of the Borrower in the form of accounts receivable incurred, and
investments, loans, and advances made in settlement of such accounts
receivable, all in the ordinary course of business;
(ii) loans or advances to employees which either are in the
ordinary course of business or related to moving expenses of or relocation
assistance to such employees (including assistance in connection with
resale of employees' homes), provided that such loans, advances
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<PAGE> 14
or other expenses or assistance to employees do not exceed $1,000,000 in
the aggregate at any time;
(iii) acquisitions of all or part of the assets or stock of another
Person so long as the total cost of such acquisitions after the date of this
Agreement does not to exceed $7,500,000 in the aggregate, and provided that
(x) in the case of an acquisition of stock of another Person, the board of
directors (or other comparable governing body) or stockholders, as
appropriate, of such Person shall have approved such acquisition and
immediately after such acquisition, such other Person will be a Subsidiary
of the Borrower or any other Subsidiary of the Borrower in the same line of
business, (y) no Default has occurred or would occur as a result of any
such acquisition, and (z) the Borrower and its Subsidiaries are in
compliance on a pro forma basis with all of the covenants set forth in
Section 7.1 (assuming the acquisition had occurred as of the first day of
the applicable period ending as of the last day of the most recent calendar
quarter for which the Bank has received financial information required by
Section 6.1);
(iv) money market funds, prime commercial paper and repurchase
agreements, each with an Acceptable Rating (as hereafter defined); bankers'
acceptances or certificates of time deposit issued by commercial banks with
a combined capital and surplus in excess of $500,000; money market funds
that invest only in securities with an Acceptable Rating; readily
marketable securities issued or fully guaranteed or insured by the
government of the United States of America or an agency or instrumentality
thereof, or repurchase agreements collateralized by such securities (for
purposes of this Agreement, an "Acceptable Rating" as to money market
funds, commercial paper or securities means a credit rating of either of
the two highest rating categories or classifications of either Standard &
Poor's Ratings Service or Moody's Investors Service with respect thereto);
(v) stock or securities of any Person purchased for the purpose of
following the public reporting of such Person, not to exceed $25,000 at any
time in the aggregate; and
(vi) acquisitions of all or part of the assets or stock of another
Person not otherwise permitted by any of the foregoing clauses if the Bank
has given its prior written consent to the acquisition thereof and the
financial covenants set forth in Section 7.1 hereof have been modified to
reflect the pro-forma effect of any such acquisition.
"Permitted Liens" shall mean (i) Liens in favor of the Bank, (ii) Liens for
taxes, assessments or governmental charges or levies if the same shall not at
the time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings and for which adequate
reserves are maintained; or (iii) Liens imposed by law, such as landlords',
carriers', warehouseman's and mechanics' liens and other similar liens arising
in the ordinary course of
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<PAGE> 15
business which secure payment of obligations not more than 30 days past due or
which are being contested or disputed in good faith, if adequate reserves for
such liens are maintained.
"Person" includes, without limitation, any individual, corporation,
partnership, unincorporated association or organization, government or agency
or political subdivision thereof, trust, joint venture or any other entity or
any trustee, receiver, custodian or similar official.
"Plan" means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower or any member of the Controlled Group
and covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.
"Prime Rate" shall mean the variable per annum rate of interest announced
by Societe Generale, New York Branch from time to time as its prime rate of
interest, whether or not the Borrower has notice thereof.
"Property" of any Person shall mean any and all property or assets (real,
personal or mixed, tangible or intangible) of such Person.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended, state and local analogs, and all rules, regulations, and requirements
thereunder, in each case as now or hereafter in effect.
"Receivables" shall mean, as at any date of determination thereof, the
unpaid principal portion of the obligation, as stated on the respective
invoice, of any customer of the Borrower to pay money to the Borrower in
respect of any services performed by the Borrower or inventory purchased from
the Borrower, net of any credits, rebates or offsets owed to such customer
(including any amount by which the Borrower is indebted to such obligor with
respect to materials or supplies purchased by the Borrower from such obligor)
and also net of any commissions payable by the Borrower to third parties.
"Regulation "D"" shall mean Regulation "D" of the Federal Reserve Board, as
the same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Federal Reserve Board, as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Regulation X" means Regulation X of the Federal Reserve Board, as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Release" shall have the meaning set forth in CERCLA or under any other
Environmental Law.
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<PAGE> 16
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA, for which reporting has not been waived by applicable rule or
regulation.
"Response" shall have the meaning set forth in CERCLA or under any other
Environmental Law.
"SDWA" means the Safe Drinking Water Act, as amended, state and local
analogs, and all rules, regulations and requirements thereunder, in each case
as now or hereafter in effect.
"SEC" shall mean the Securities and Exchange Commission.
"Security Agreement" shall mean the Security Agreement of the Borrower in
favor of the Bank described in Section 3.1 hereof, as it may be amended from
time to time.
"Subsidiary" of any Person shall mean any corporation, association,
partnership or other business entity of which more than 50% of the outstanding
shares of capital stock (or other equivalent interests) having by the terms
thereof ordinary voting power under ordinary circumstances to elect a majority
of the board of directors or Persons performing similar functions (or, if there
are no such directors or Persons, having general voting power) of such entity
(irrespective of whether at the time capital stock (or other equivalent
interests) of any other class or classes of such entity shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person.
"Tangible Net Worth" shall mean as of any date, the total assets of the
Borrower and its consolidated Subsidiaries less the total liabilities of the
Borrower and its consolidated Subsidiaries as set forth on the Borrower's
consolidated balance sheet at such date, prepared in accordance with GAAP,
except that the sum of the following shall be excluded therefrom: goodwill,
patents, trademarks, copyrights, deferred charges, deferred credits, and
prepaid expenses (including, but not limited to, unamortized discount and
expenses and organizational expenses).
"Termination Date" shall mean September 30, 2001, or such earlier date the
Commitment is terminated pursuant to Sections 2.12, 8.2 or 8.3 hereof.
"Termination Event" shall mean (i) a Reportable Event with respect to a
Plan, or (ii) any prohibited transaction, as that term is defined in Section
4975 of the Code, or (iii) the withdrawal of the Borrower or any member of the
Controlled Group from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (iv) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (v) the institution of proceedings
to terminate a Plan by the PBGC, or
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<PAGE> 17
(vi) any other event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan.
"Total Indebtedness" shall mean (without duplication), at any time and with
respect to any Person, (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables or bank drafts (payable within 120 days) arising in
the ordinary course); (ii) indebtedness of others which such Person has
directly or indirectly assumed or guaranteed or otherwise provided credit
support therefor; (iii) indebtedness of others secured by a Lien on assets of
such Person, whether or not such Person shall have assumed such indebtedness,
but only to the extent of the lesser of (x) the fair market value of the assets
so subject to the Lien and (y) the amount of the secured indebtedness; (iv)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person (other than trade
payables or bank drafts (payable within 120 days) arising in the ordinary
course); and (v) obligations of such Person under Capital Leases.
"$" or "United States Dollars" shall mean dollars in lawful currency of the
United States of America.
Section 1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with those
applied in the preparation of the Financial Statements referred to in Section
5.3 hereof as with any changes in GAAP subsequent to the date of this Agreement
occur, and all financial data submitted pursuant to this Agreement shall,
unless expressly qualified to the contrary, be prepared in accordance with such
principles.
Section 1.3 Miscellaneous. The words "hereof", "herein" and "hereunder"
and words of similar import, when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Article, Section and Exhibit references are to Articles, Sections and Exhibits
to this Agreement, unless otherwise specified.
ARTICLE II
TERMS AND CONDITIONS
Section 2.1 Advances and Letters of Credit. Subject to the terms and
conditions contained in this Agreement, the Bank agrees to make available to
the Borrower a revolving credit facility, under which the Borrower may borrow
Advances from the Bank and request the Bank to issue Letters of Credit at any
time and from time to time, on or before the earlier of (i) the Termination
Date, or (ii) such earlier date as of which the Commitment has terminated
pursuant to the terms of
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<PAGE> 18
Section 2.12, 8.2 or 8.3 hereof, such amounts as the Borrower may request;
provided, however, that (1) the aggregate outstanding principal balance of all
outstanding Advances plus the aggregate undrawn face amount of all outstanding
Letters of Credit shall not exceed at any time an amount equal to the lesser of
(a) the Commitment or (b) the Borrowing Base, (2) the aggregate undrawn face
amount of all outstanding Letters of Credit shall not exceed $1,000,000, and
(3) that each request for an Adjusted Prime Rate Advance hereunder shall be in
the minimum amount of $100,000 and an integral multiple thereof, and each
request for a LIBO Rate Advance hereunder shall be in the minimum amount of
$1,000,000 and an integral multiple of $100,000.
(a) All Advances, together with accrued interest thereon as provided in
Section 2.2, shall be evidenced by the Note. The outstanding principal balance
of the Advances, and all accrued interest thereon, shall be due and payable in
full on the Termination Date. At any time prior to the Termination Date,
subject to the terms and conditions hereof, the Borrower may borrow, repay and
reborrow Advances hereunder.
(b) Each request for an Advance shall be made on notice given by the
Borrower not later than 11:00 A.M. (Dallas time) (i) on the third Business Day
prior to the date of a proposed LIBO Rate Advance, or (ii) on the Business Day
of a proposed Adjusted Prime Rate Advance. Each such notice from the Borrower
of a request for Advance (a "Notice of Borrowing") shall be in writing and
shall be in substantially the form of Exhibit "D" hereto, specifying (i) the
requested date of such Advance, (ii) the aggregate Dollar amount of such
Advance, and (iii) in the case of a LIBO Rate Advance, the initial Interest
Period for such Advance. Each Notice of Borrowing shall be irrevocable and
binding on the Borrower.
(c) Each request for a Letter of Credit shall be made on notice given by
the Borrower not later than 11:00 A.M. (Dallas time) at least three Business
Days prior to the date a proposed Letter of Credit is to be issued, in the form
of Exhibit "G" attached hereto, specifying (i) the requested date of issuance
of such proposed Letter of Credit, (ii) the face amount of such proposed Letter
of Credit, (iii) the form of such proposed Letter of Credit, which must be a
standby Letter of Credit in form acceptable to the Bank, and (iv) the expiry
date of such proposed Letter of Credit, which expiry date shall in no event be
(A) more than one year from the date of issuance or, if renewed, one year from
any date of such renewal, or (B) later than the Termination Date. The amount
paid by the Bank in connection with any drawing under a Letter of Credit shall
be reimbursed by the Borrower to the Bank on the same day as such payment by
the Bank, provided, however, that in the event any such amount is not
reimbursed by the Borrower to the Bank on the same day as such payment by the
Bank, such amount shall be deemed to be a Adjusted Prime Rate Advance made as
of the date of such payment by the Bank, which is due and payable on the third
Business Day thereafter.
Section 2.2 Interest.
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<PAGE> 19
(a) Interest shall accrue on the unpaid principal amount of each Advance
at a rate selected by the Borrower equal to either (i) the LIBO Rate or (ii)
the Adjusted Prime Rate, and shall be due and payable on each Interest Payment
Date for such Advance. There shall be no more than three (3) Interest Periods
applicable to LIBO Rate Advances hereunder at any one time.
(b) At least three Business Days prior to the end of any Interest Period
applicable to an outstanding LIBO Rate Advance, the Borrower shall, by notice
to the Bank, select a new Interest Period to be applicable to such Advance or
request that such Advance be converted to an Adjusted Prime Rate Advance at the
end of the Interest Period then applicable thereto. If the Bank does not
receive such notice it will automatically convert such LIBO Rate Advance to an
Adjusted Prime Rate Advance at the end of the Interest Period then applicable
thereto. At any time upon three Business Days prior notice to the Bank, the
Borrower may convert all or any portion of an Adjusted Prime Rate Advance (but
not less than $1,000,000 and an integral multiple of $100,000) into a LIBO Rate
Advance having an Interest Period as selected by the Borrower.
(c) If at any time the Bank determines that Dollars are not available to
the Bank in the London interbank market for any Interest Period requested by
the Borrower, or it is otherwise impossible to have LIBO Rate Advances, then,
the Borrower agrees that (i) the obligation of the Bank to make or maintain
LIBO Rate Advances shall be suspended until such time as the Bank gives notice
to the Borrower that the circumstances giving rise to such suspension no longer
exist, (ii) each requested Advance thereafter shall be an Adjusted Prime Rate
Advance, and (iii) each outstanding LIBO Rate Advance shall be converted to an
Adjusted Prime Rate Advance on the last day of the then applicable Interest
Period.
Section 2.3 Fees.
(a) On the last day of each March, June, September and December after the
Effective Date and on the Termination Date, the Borrower shall pay to the Bank
a commitment fee on the average daily amount during the preceding quarter by
which the Commitment exceeded the sum of outstanding Advances plus the undrawn
face amount of outstanding Letters of Credit plus the aggregate unpaid amount
of all reimbursement obligations under such Letters of Credit. Such commitment
fee shall to be calculated at a rate per annum equal to the Applicable Margin
during the preceding quarter (or in the case of the last such payment, during
the period from the immediately preceding payment date of such fee to the
Termination Date), calculated on the basis of a 360-day year.
(b) On the last day of each March, June, September and December after the
Effective Date and on the Termination Date, the Borrower shall pay to the Bank
a letter of credit fee in connection with each Letter of Credit issued or
extended after the Effective Date equal to the Applicable Margin calculated on
the maximum amount available from time to time to be drawn under such Letter of
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Credit, calculated on the basis of a 360-day year for the number of days from
and including the date of issuance to but excluding the expiry date or
termination date of such Letter of Credit.
Section 2.4 Payments and Computations.
(a) All payments hereunder or under the Note shall be made to the Bank at
its offices at 4800 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas,
75201, or at such other address or addresses as the Bank may designate for such
purpose from time to time by written notice to the Borrower, without any
presentment thereof. The Borrower shall make all payments under the Note not
later than 12:00 noon (Dallas time) on the day when due to the Bank in Dollars
in immediately available funds.
(b) Whenever any payment hereunder or under the Note shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest at the rate then effective.
(c) Interest hereunder shall be computed on the basis of a 360-day year,
in the case of the LIBO Rate, and on the basis of a 365 or 366-day year, as
applicable, in the case of the Adjusted Prime Rate, for the actual number of
days elapsed, including the first day but excluding the last day.
Section 2.5 Illegality. Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for the Bank to make
or maintain LIBO Rate Advances or to perform its obligations hereunder, the
Borrower agrees that upon notice to the Borrower by the Bank, (a) the
obligation of the Bank to make or maintain LIBO Rate Advances shall be
suspended while such unlawfulness exists or is asserted, (b) the Borrower shall
forthwith pay interest on such Advances at the Adjusted Prime Rate, and (c) the
Borrower shall indemnify the Bank for all losses, expenses and liabilities as
provided in Section 2.11 hereof.
Section 2.6 Increased Costs. If the enactment or adoption of any Legal
Requirement or if any change in any Legal Requirement or in the interpretation
thereof by any court or regulatory body or other governmental authority charged
with the administration thereof or compliance by the Bank with any request or
directive (whether or not having the force of law) or any such court, or
governmental or regulatory authority or central bank shall either (i) impose,
modify or deem applicable any reserve, special deposit, capital or similar
requirement against any extension of credit by, or assets of, or any deposits
or other liabilities of, the Bank or (ii) impose on the Bank any tax, duty or
other charge with respect to this Agreement or any condition regarding this
Agreement, and the result of any event referred to in clauses (i) or (ii) above
shall be to increase the cost to the Bank of maintaining LIBO Rate Advances or
issuing or maintaining Letters of Credit or to reduce the
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amounts receivable by the Bank hereunder in connection with LIBO Rate Advances
or Letters of Credit (which increase in cost or reduction in amounts receivable
shall be the result of the Bank's reasonable allocation of the aggregate of
such cost increases or reductions resulting from such events), then, within ten
days of demand by the Bank, the Borrower shall pay to the Bank from time to
time as specified by the Bank, additional amounts which shall be sufficient to
compensate the Bank for the portion of such increased cost or reduction
allocable to the Borrower, together with interest on each such amount accruing
from the date five days after the date payment of such amount was demanded
until payment of such amount in full at the Adjusted Prime Rate. A certificate
setting forth in reasonable detail such increased cost or reduction incurred by
the Bank as a result of any event mentioned in clause (i) or (ii) above,
submitted by the Bank to the Borrower, shall be conclusive, absent manifest
error, as to the amount thereof, provided that the Borrower shall not be
obligated to pay such cost or reduction unless the Bank shall have similar
terms as its general policy applicable to similar borrowers electing to borrow
funds subject to LIBO Rate interest provisions or requesting letters of credit.
The protection of this paragraph shall be available to the Bank regardless of
any possible contention of invalidity or inapplicability of the Legal
Requirement which has been imposed, unless such Legal Requirement is ultimately
determined to be invalid or inapplicable and the result of such determination
is to retroactively eliminate the increase in cost or reduction of amounts
receivable resulting from such Legal Requirement.
Section 2.7 Taxes/Net Payments.
(a) Any and all payments by the Borrower hereunder or under the Note shall
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, however, income, capital and
franchise taxes imposed by the United States or a state or other political
subdivision thereof (all taxes, levies, imposts, deductions, charges,
withholdings and liabilities referred to in this sentence (other than such
excluded income, capital and franchise taxes imposed by the United States or a
state or other political subdivision thereof) are herein referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under the Note, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.7) the Bank receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions, and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law and in a manner such that the Bank shall not be required to make any
deduction or payment of any Taxes.
(b) If the Bank shall be required by law to make any deduction or payment
with respect to any payment made by the Borrower for any present or future
taxes, levies, imposts, deductions, charges, withholdings or liabilities with
respect thereto, excluding, however, income, capital and
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franchise taxes imposed by the United States or a state or other political
subdivision thereof (all taxes, levies, imposts, deductions, charges,
withholdings and liabilities referred to in this sentence (other than such
excluded income, capital and franchise taxes imposed by the United States or a
state or other political subdivision thereof) are herein referred to as "Other
Taxes"), (i) the Borrower agrees to pay such Other Taxes to the relevant
taxation authority or other authority in accordance with applicable law and in
a manner such that the Bank shall not be required to make any such deduction or
payment of any Other Taxes, and (ii) the Bank may, at its option, pay such
Other Taxes, and the Borrower agrees to reimburse immediately the Bank for the
amount so paid plus interest thereon from the date so paid until reimbursed at
the Adjusted Prime Rate.
(c) The Borrower will indemnify, and does hereby indemnify, the Bank for
the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable by the
Borrower or the Bank under this Section 2.7) paid by the Bank and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payment under such indemnification shall be made within 30 days from
the date the Bank makes written demand therefor from time to time, provided
that such indemnification shall only be required if the Bank shall have similar
terms as its general policy applicable to similar borrowers.
Section 2.8 Interest on Overdue Amounts. In the event that any Advances
are not paid when due or any interest thereon or other amount payable by the
Borrower hereunder is not paid when due the Borrower shall pay interest on any
such overdue amount, to the extent permitted by law, from and including the
date such amount becomes due to but excluding the date paid (calculated on the
basis of a 360-day year), at the Default Rate, such interest to be due and
payable on demand by the Bank.
Section 2.9 Mandatory Prepayments. If at any time the aggregate amount of
outstanding Advances plus the aggregate undrawn face amount of all outstanding
Letters of Credit exceeds the Borrowing Base, the Borrower shall prepay
Advances, within five days after notice thereof, in an amount equal to such
excess, such prepayment to be applied first to outstanding Adjusted Prime Rate
Advances and then to outstanding LIBO Rate Advances, and, if necessary
thereafter, will provide cash collateral for outstanding Letters of Credit in
an amount equal to such remaining excess.
Section 2.10 Optional Prepayments. The Borrower may prepay any Advance
in full or in part upon at least (i) three Business Days' notice to the Bank in
the case of LIBO Rate Advances, or (ii) one Business Day notice to the Bank in
the case of Adjusted Prime Rate Advances, in each case stating the proposed
date and principal amount of the prepayment, and if such notice is given, the
Borrower shall prepay such principal amount with accrued interest to the date
of such prepayment on the principal amount prepaid; provided, however, that any
such prepayment in connection with any LIBO Rate Advance shall be made only on
the last day of the then current Interest Period applicable thereto; and
provided, further, that all prepayments shall be in integral multiples of
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$100,000 and no LIBO Rate Advance remaining outstanding shall be an amount less
than $1,000,000.
Section 2.11 Compensation. The Borrower shall compensate the Bank,
upon written request by the Bank, for all losses, expenses and liabilities (i)
if any prepayment or conversion of any LIBO Rate Advance occurs on a date which
is not the last day of the Interest Period for such Advance being prepaid or
converted, (ii) if any prepayment or conversion of any LIBO Rate Advance is not
made on any date specified in a notice of prepayment given by the Borrower
pursuant to Section 2.10 hereof or notice of conversion given by the Borrower
pursuant to Section 2.2 hereof, (iii) as a result of any failure to borrow any
LIBO Rate Advance requested pursuant to a Notice of Borrowing, whether due to
failure by the Borrower to fulfill on or before the date specified for such
LIBO Rate Advance the applicable conditions specified in Article IV or
otherwise, or (iv) as a consequence of the timing of any acceleration of the
LIBO Rate Advances pursuant to Sections 9.2 or 9.3 hereof, or conversion of the
LIBO Rate Advances to the alternative interest rate calculation as provided in
Section 2.5 hereof, including (without limitation) any loss or expense incurred
in liquidating or employing deposits from third parties and loss of interest or
other profit for the period after such prepayment, acceleration or conversion;
provided that the Bank shall have delivered to the Borrower a certification in
reasonable detail as to the amount of such loss or expense, which certification
shall be binding on the Borrower in the absence of manifest error; and provided
further that the Bank shall have similar terms as its general policy applicable
to similar borrowers electing to borrow funds subject to LIBO Rate interest
provisions.
Section 2.12 Termination or Reduction of Commitment. The Borrower may
at any time terminate the obligation of the Bank to make Advances hereunder or
reduce the unused amount of the Commitment, upon five days prior written notice
to the Bank, in integral multiples of $100,000; provided, however, that any
such termination or reduction shall be permanent, and the Borrower shall not be
entitled to reinstate the obligation of the Bank to make Advances or increase
the amount of the Commitment.
Section 2.13 Extension of Termination Date. Within thirty days prior
to each anniversary date of this Agreement, the Borrower and the Bank agree to
discuss a one year or more extension of the then effective Termination Date, it
being expressly acknowledged that neither party hereto shall have any
obligation to agree to any such extension, and that such extension shall be
subject to such terms and conditions as the parties may mutually agree.
Section 2.14 Obligations Absolute. To the fullest extent permitted by
applicable law, the obligations of the Borrower under this Agreement in
connection with Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be paid or performed strictly in accordance with the
terms of this Agreement, under all circumstances whatsoever, including, without
limitation, the following circumstances:
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<PAGE> 24
(a) any lack of validity or enforceability of this Agreement, the Security
Agreement, or any Letter of Credit;
(b) any amendment or waiver of or any consent to depart from the terms of
this Agreement, the Security Agreement, or any Letter of Credit (with the
consent of the Borrower and any beneficiary of such Letter of Credit);
(c) the existence of any claim, set-off, defense or other right that the
Borrower may have at any time against any beneficiary or any transferee of any
Letter of Credit, the Bank or any other Person, whether in connection with this
Agreement, or any transactions contemplated hereby or thereby or any unrelated
transaction;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect whatsoever,
provided that payment by the Bank under any Letter of Credit shall not have
constituted gross negligence or willful misconduct of the Bank;
(e) any nonapplication or misapplication by the beneficiary of any Letter
of Credit or otherwise of the proceeds of any drawing under any Letter of
Credit;
(f) payment by the Bank under any Letter of Credit against presentation of
a draft or certificate that does not comply with the terms of such Letter of
Credit, provided that payment by the Bank under such Letter of Credit shall not
have constituted gross negligence or willful misconduct of the Bank;
(g) the failure by the Bank to honor any drawing under any Letter of
Credit or to make any payment demanded under any Letter of Credit on the ground
that the demand for such payment does not conform to the terms and conditions
such Letter of Credit, provided that such failure shall not have constituted
gross negligence or willful misconduct of the Bank; and
(h) any other circumstance or happening whatsoever, including the
circumstances described in Section 2.15, whether or not similar to any of the
foregoing, provided that such circumstances or happening shall not have
constituted gross negligence or willful misconduct of the Bank.
Section 2.15 Limited Liability of the Bank.
(a) Notice of Bank's Duties. As between the Bank and the Borrower, the
Borrower assumes all risk of the acts or omissions of any beneficiary of a
Letter of Credit with respect to its use of such Letter of Credit. Neither the
Bank, its correspondents, its affiliates nor any of their officers or directors
shall be liable or responsible for:
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<PAGE> 25
(i) the use which may be made of any Letter of Credit or for any
actions or omissions of any beneficiary of any Letter of Credit;
(ii) the existence or nonexistence of a default under any instrument
secured or supported by any Letter of Credit or any other event
which gives rise to a right to call upon any Letter of Credit;
(iii) the failure of any instrument to bear any reference or adequate
reference to any Letter of Credit;
(iv) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted in connection with the
application for and issuance of, or the making of a drawing under,
any Letter of Credit, even if it should in fact prove to be in any
or all respect invalid, insufficient, inaccurate, fraudulent or
forged;
(v) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole
or in part, that may prove to be invalid or ineffective for any
reason;
(vi) the failure of the beneficiary of any Letter of Credit to comply
fully with all conditions required in order to effect a drawing;
(vii) errors, omissions, interruptions, losses, or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex, telecopier or otherwise;
(viii) any consequences arising from causes beyond the control of the
Bank; and
(ix) any act, error, neglect or default, omissions, insolvency or
failure in the business of any of the Bank's correspondents, for
any refusal by the Bank or any of the Bank's correspondents to pay
or honor drafts drawn under any Letter of Credit because of any
applicable law, now or hereafter enforced, or for any matter
beyond the control of the Bank and its affiliates;
except only that the Borrower shall have a claim against the Bank for acts or
events described in the immediately preceding clauses (ii) through (ix), and
the Bank shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by (A) the Bank's willful
misconduct or gross negligence in determining whether documents were presented
under any Letter of Credit comply with the terms of any Letter of Credit or (B)
the Bank's willful failure or gross negligence in failing to pay under such
Letter of Credit after the presentation to it by the beneficiary of a sight
draft and any required document strictly complying with the terms and
conditions of the such Letter of Credit.
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<PAGE> 26
(b) No Duty to Inquire. The Borrower agrees that the Bank is authorized
and instructed to accept and pay drawings under any Letter of Credit without
requiring, and without responsibility for, the determination as to the
existence of any event giving rise to such drawing, either at the time of
acceptance of documents presented in connection with such drawing, upon payment
of such drawing by the Bank or thereafter. The Borrower agrees that the Bank
is under no duty to determine the proper identity of anyone presenting
documents under any Letter of Credit in connection with a drawing or otherwise
(whether by tested telex or otherwise) as the officer, representative or agent
of any beneficiary under the such Letter of Credit and payment by the Bank to
any such beneficiary when requested by any such purported officer,
representative or agent is hereby authorized and approved by the Borrower. In
furtherance and not in limitation hereof, the Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
ARTICLE III
SECURITY
Section 3.1 Collateral. As security for the Indebtedness and the
performance of all other obligations of the Borrower to the Bank pursuant to
this Agreement and the other Loan Documents, the Borrower agrees that at all
times the Bank shall have an Acceptable Security Interest in all accounts and
all finished goods and new tire inventory of the Borrower. The security
interests in the Collateral will be granted pursuant to a security agreement
and a financing statement, each in favor of the Bank and substantially in the
forms of Exhibits "B" and "C" attached hereto, and (ii) such other documents as
the Bank may reasonably request.
Section 3.2 Further Assurances. The Borrower agrees to execute or to
cause the execution of such further financing statements, instruments or
documents as may be necessary from time to time in the opinion of the Bank to
effect the intent of this Article III.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Effectiveness. This Agreement shall become
effective when the Bank shall have received all of the following in form and
substance satisfactory to the Bank:
(a) this Agreement duly and validly authorized and executed by the
Borrower;
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<PAGE> 27
(b) a certificate from the Borrower's insurance agent to the effect that
the insurance policies described in Section 6.2 of this Agreement are in full
force and effect, naming the Bank as loss payee thereunder as its interests may
appear (for insured losses greater than $500,000) and containing the agreement
of the issuer of such policies to give thirty (30) days' prior written notice
to the Bank of any cancellation thereof;
(c) certificates of incumbency, and such other documents as may be
reasonably requested by the Bank, and such documentation relating to the
existence, payment of taxes and any other matters regarding the Borrower as the
Bank and its counsel may reasonable request;
(d) payment of (i) all letter of credit fees accrued but unpaid in
connection with Letters of Credit issued prior to the date of this Agreement,
and (ii) an amendment fee equal to $12,500.
Section 4.2 Conditions Precedent for each Advance or Letter of Credit.
The obligation of the Bank to make any Advance or Letter of Credit is subject
to the following conditions precedent:
(a) All representations and warranties of the Borrower contained herein or
in any other Loan Document shall be true and correct in all material respects.
(b) There shall exist no Default or Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as follows:
Section 5.1 Organization and Authority. The Borrower and each of its
Subsidiaries is a corporation duly and validly organized and in good standing
under the laws of the state or country of its incorporation, and is authorized
to do business and is in good standing in all jurisdictions in which such
qualification or authorization is necessary. The Borrower has all requisite
corporate power and authority to conduct its business, own its properties, and
to enter into and deliver the Loan Documents and all other documents and
agreements contemplated by this Agreement to which the Borrower is a party and
to perform all of its obligations pursuant to each of them. The Loan Documents
and all other documents and agreements contemplated hereby to which the
Borrower is a party have been duly authorized, executed and delivered by the
Borrower and constitute legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the rights of creditors generally.
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<PAGE> 28
Section 5.2 Other Instruments. The Borrower is not in material violation
of any provisions of any Other Instruments, and the execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby, the
execution and delivery of the instruments contemplated hereby, and fulfillment
of the terms and compliance with the provisions hereof and thereof do not and
will not result in a material violation or breach of, or constitute a default
under or result in any Lien (other than a Permitted Lien) upon any Collateral
under any of the Other Instruments. The Borrower is not a party to or bound by
any contract or subject to any restriction which could reasonably be expected
to cause a Material Adverse Change. The Borrower is not required to obtain any
consent, approval or authorization of, or to make any registration, declaration
or filing with, any government or government entity as a condition precedent to
the valid execution and delivery of this Agreement or any other instrument or
agreement contemplated hereby and the valid issue and delivery of the Note as
contemplated hereby.
Section 5.3 Financial Condition. The Borrower has delivered to the Bank
its financial statements for the fiscal year ended December 31, 1996 (such
statements are collectively referred to herein as "the Financial Statements").
The Financial Statements have been prepared in accordance with GAAP
consistently applied, and fairly present the financial condition of the
Borrower as of December 31, 1996. No Material Adverse Change has occurred
since December 31, 1996.
Section 5.4 Litigation. There are no actions, suits or proceedings
pending against the Borrower or any of its Subsidiaries at law, in equity or in
admiralty or by or before any Governmental Authority, and, to the best
knowledge of the Borrower, there are no actions, suits or proceedings
threatened against the Borrower or any of its Subsidiaries, except for such
actions, suits or proceedings which could not reasonably be expected to cause a
Material Adverse Change.
Section 5.5 Title to Properties; Liens. The Borrower and each of its
Subsidiaries has good and marketable title to all of its Properties as
reflected in the Financial Statements (except as otherwise disclosed to the
Bank in writing) and to all Property acquired by it subsequent to the date of
the Financial Statements, except Property disposed of since that date in the
ordinary course of its business. Except for the Liens contemplated by this
Agreement, all of the Collateral is free and clear of any and all Liens other
than Permitted Liens; and the execution and delivery of the Loan Documents will
create Acceptable Security Interests in favor of the Bank in all of the
Collateral.
Section 5.6 Tax Returns. Except as previously disclosed to the Bank in
writing and except in connection with taxes being diligently contested in good
faith and for which reserves in accordance with GAAP are maintained, the
Borrower and each of its Subsidiaries has filed or caused to be filed all tax
returns (or extensions) which it was required to file, paid and discharged or
caused to be paid and discharged all taxes as shown on such returns (or
extensions) or on any assessment received by it to the extent that such taxes
have become due, and does not know of any actual or
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proposed assessments for additional governmental or other taxes for any fiscal
period. The charges, accruals and reserves on its respective books with
respect to governmental and other taxes for all fiscal periods are adequate.
Section 5.7 Environmental.
(a) To the best knowledge of the Borrower, and except for such matters as
could not reasonably be expected to cause a Material Adverse Change, the
Borrower and each of its Subsidiaries (i) has obtained all Environmental
Permits necessary for the ownership and operation of its Property and the
conduct of its business; (ii) has been and is in compliance with all terms and
conditions of such Environmental Permits and with all other requirements of
applicable Environmental Laws; (iii) has not received notice of any violation
or alleged violation of any Environmental Law or Environmental Permit; and (iv)
is not subject to any actual or contingent Environmental Claim.
(b) To the best knowledge of the Borrower, and except for such matters as
could not reasonably be expected to cause a Material Adverse Change or such
matters which are being diligently contested by appropriate good faith
proceedings and for which reserves required by GAAP are maintained, none of the
present or previously-owned or operated property of the Borrower or any of its
Subsidiaries, wherever located, (i) has been placed on or proposed to be placed
on the National Priorities List, the Comprehensive Environmental Response
Compensation Liability Information System list, or their state or local
analogs, or have been otherwise designated, listed, or identified as a
potential site for removal, remediation, cleanup, closure, restoration,
reclamation, or other Response activity under any Environmental Laws; (ii) is
subject to an Environmental Lien that attaches to any revenues, inventory,
receivables, or to any real or personal property owned or operated by Borrower
or any of its Subsidiaries, wherever located; or (iii) has been the site of any
Release of Hazardous Substances from present or past operations.
Section 5.8 Subsidiaries. The Borrower has no Subsidiaries other than
Subsidiaries disclosed to the Bank in writing.
Section 5.9 Executive Office; Production Facilities. The chief executive
office of the Borrower is located at 1101 South 21st Street, Fort Smith,
Arkansas, 72901. Production and sales facilities of the Borrower are located
only in the states identified on Schedule 5.9 attached hereto, as such Schedule
may be amended from time to time by written notice to the Bank.
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<PAGE> 30
ARTICLE VI
AFFIRMATIVE COVENANTS
Until the Commitment has terminated and all Letters of Credit have expired
or been terminated and the Bank has received full payment of the Indebtedness,
the Borrower covenants and agrees as follows:
Section 6.1 Information. The Borrower will deliver or cause to be
delivered to the Bank all of the following:
(a) as soon as reasonably possible, but in any event within ninety (90)
days after the close of each fiscal year of the Borrower, the Borrower's Form
10-K as filed with the SEC, including the audited consolidated financial
statements of the Borrower and its consolidated Subsidiaries, containing a
balance sheet, statement of income and retained earnings and changes in
financial position (such financial statements to be prepared in accordance with
GAAP consistently applied and duly certified by independent public accountants
of recognized standing reasonably acceptable to the Bank);
(b) as soon as reasonably possible, but in any event within forty-five
(45) days after the close of each quarter of each fiscal year of the Borrower,
the Borrower's Form 10-Q as filed with the SEC, including the unaudited
consolidated financial statements of the Borrower and its consolidated
Subsidiaries for such quarter, containing a balance sheet, statement of income
and retained earnings and changes in financial position (such quarterly
financial statements shall be prepared in accordance with GAAP consistently
applied and shall be duly certified as accurate in all material respects by the
Chief Financial Officer of the Borrower);
(c) within thirty (30) days after the last day of each month, the
Borrower's in house management monthly financial statements and a duly
completed Borrowing Base Certificate, together with a summary of accounts
receivable of the Borrower as of the last day of such month and a summary of
all finished goods and new tire inventory; such summaries shall be in form
reasonably satisfactory to the Bank and shall be certified as accurate in all
material respects by the Chief Financial Officer of the Borrower;
(d) at the time of delivery of any information furnished pursuant to
paragraphs (a) and (b) of this Section 6.1, a certificate signed by the Chief
Financial Officer of the Borrower (i) stating that based upon a review under
such officer's supervision of the activities of the Borrower during the period
to which such information relates, either there has not occurred any Default or
that a Default has occurred, in which case such certificate shall state the
nature, status and period of existence of all such Defaults; (ii) setting forth
in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Section 7.1 on the date of
such financial
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statements, and (iii) stating whether or not the Borrower has made timely
payment of all lease payments due and payable by the Borrower and, if not,
identifying the respective leases in default and the location of the affected
leased Property.
(e) promptly after the filing thereof with the SEC, all other reports
filed with the SEC; and
(f) such other information concerning the Borrower and its Subsidiaries
and the Collateral as the Bank may from time to time reasonably request,
including without limitation detailed schedules of accounts receivable and
inventory constituting Collateral.
Section 6.2 Insurance. The Borrower will maintain, and cause each of its
Subsidiaries to maintain insurance in full force and effect with insurance
companies reasonably acceptable to the Bank, on all of its properties of an
insurable nature in such manner and amounts and against such casualties and
contingencies as similar assets are customarily insured by companies of
established reputation which own similar assets and against such other
casualties or contingencies as the Bank may reasonably require. Such insurance
policies shall be with insurance companies of recognized standing. Each and
every policy of insurance maintained by the Borrower covering Collateral shall
name the Bank as "Loss Payee" for insured losses exceeding $500,000 and shall
provide for a minimum of 30 days' prior written notice to the Bank of any
cancellation. The Borrower will furnish evidence of such insurance to the Bank
upon the written request by the Bank.
Section 6.3 Taxes. The Borrower will pay and discharge, and cause each of
its Subsidiaries to pay and discharge all taxes, assessments and governmental
and other charges and claims levied or imposed on or which, if unpaid when due,
might become a lien or charge upon its assets, earnings or business; except
such taxes as are being contested in good faith and against which adequate
reserves have been provided in accordance with GAAP.
Section 6.4 Conduct of Business. The Borrower will take or cause to be
taken all such actions as from time to time may be necessary to preserve and
keep in full force and effect the Borrower's and each of its Subsidiaries'
corporate existence under the laws of its state of incorporation and franchises
in every jurisdiction in which the nature of its business requires it to be
qualified, if the failure to so qualify would have a material adverse effect on
the Borrower or such Subsidiary, and to continue to conduct and operate its
respective business and financial affairs substantially as such affairs have
been conducted and operated. The Borrower will, and cause each of its
Subsidiaries to, maintain, preserve, protect, and keep all of its assets
material to the operation of its business in good condition, reasonable wear
and tear excepted.
Section 6.5 Use of Proceeds. The Borrower shall use the proceeds of the
Advances solely for working capital and other general corporate purposes, and
not for the purpose, whether
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immediate, incidental or ultimate, of purchasing or carrying within the meaning
of Regulation U any "margin stock" as defined therein.
Section 6.6 Notification of Adverse Events. The Borrower will give the
Bank prompt and full written notice of:
(a) the occurrence of any Default or Event of Default; and
(b) any form of notice, summons, citation or other written or oral
communication received by the Borrower or any of its Subsidiaries from the EPA,
or any other Governmental Authority, concerning (i) material violations or
alleged material violations of Environmental Laws, which seeks to impose
material liability therefor, (ii) any action or omission on the part of the
Borrower or such Subsidiary in connection with Hazardous Substances which could
reasonably be expected to result in the imposition of liability therefor, which
liability, if imposed, could reasonably be expected to cause a Material Adverse
Change, including without limitation any notice of potential responsibility
under CERCLA, or (iii) a Lien upon any Collateral, or a Lien arising under any
Environmental Law against or in connection with the Borrower or such
Subsidiary, or any of its leased or owned Property, wherever located, if the
effect of such Lien could reasonably be expected to cause a Material Adverse
Change;
(c) any confirmed plan to open a new sales or production facility which
would involve moving inventory of the Borrower into any state in which the Bank
has not filed a financing statement;
(d) any other event or occurrence which could reasonably be expected to
cause a Material Adverse Change.
Section 6.7 Costs. The Borrower will reimburse the Bank on demand for all
reasonable out-of-pocket costs and expenses of the Bank, including without
limitation charges and disbursements of legal counsel for the Bank (not to
exceed $10,000 for legal fees in the case of legal fees associated with the
initial negotiation and preparation of this Agreement and the other Loan
Documents), in connection with the transactions contemplated by this Agreement
and all other Loan Documents and the preparation of, amendment to, or waiver of
any provision in this Agreement and such other Loan Documents, or arising in
connection with the enforcement of the Loan Documents.
Section 6.8 Inspection. The Borrower will permit such person or persons
as the Bank may designate to visit and inspect its assets, books and records
and make copies of and take extracts from such books and records and discuss
with its officers, independent accountants and other persons its affairs,
finances and accounts at all such times during reasonable business hours and as
often as the Bank may reasonably desire.
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<PAGE> 33
Section 6.9 Accounting. The Borrower will at all times keep proper books
of record and account in which entries, true and correct in all material
respects, will be made of its transactions in accordance with GAAP.
Section 6.10 Compliance with Legal Requirements. The Borrower will
comply, and cause each of its Subsidiaries to comply at all times with all
Legal Requirements of any Governmental Authority having jurisdiction over it or
its business. Without limiting the generality and coverage of the foregoing,
the Borrower will comply in all material respects with all Environmental Laws,
and all laws, regulations, or directives with respect to equal employment
opportunity and employee health and safety in all jurisdictions in which the
Borrower does business. The Borrower shall promptly take, and cause each of
its Subsidiaries to promptly take all appropriate Responses, remedial,
corrective, cleanup, or restoration action concerning the Release, discharge,
or disposal of any Hazardous Substance.
ARTICLE VII
NEGATIVE COVENANTS
Until the Commitment has terminated and all Letters of Credit have expired
or been terminated and the Bank has received full payment of the Indebtedness,
the Borrower covenants and agrees that, without the prior written consent of
the Bank:
Section 7.1 Financial Covenants.
(a) The Borrower will not permit its consolidated Tangible Net Worth to be
less than $30,000,000 as of the last Business Day of each calendar quarter.
(b) The Borrower will not permit the ratio of its consolidated Total
Indebtedness to consolidated Tangible Net Worth to be greater than 1.0 to 1.0
as of the last Business Day of each calendar quarter.
(c) The Borrower will not permit its consolidated EBITDA to be less than
(i) for the two quarter period ending September 30, 1997, $2,100,000; (ii) for
the three quarter period ending December 31, 1997, $3,200,000; and (iii) for
each rolling four quarter period ending on the last day of each March, June,
September and December thereafter, commencing with the four quarter period
ending March 31, 1998, the amount set forth below:
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<PAGE> 34
<TABLE>
<CAPTION>
Period Ended Minimum EBITDA
------------ --------------
<S> <C>
3/31/98 $ 4,000,000
6/30/98 $ 4,800,000
9/30/98 $ 5,600,000
12/31/98 $ 5,900,000
3/31/99 $ 6,200,000
6/30/99 $ 6,600,000
9/30/99 $ 8,100,000
12/31/99 $ 8,200,000
3/31/00 $ 8,600,000
6/30/00 $ 9,000,000
9/30/00 $ 9,300,000
12/31/00 $ 9,600,000
3/31/01 $ 9,800,000
6/30/01 $10,000,000
9/30/01 $10,300,000
</TABLE>
Section 7.2 Dividends, Distributions, Redemptions. The Borrower will not
declare or pay, or permit any of its Subsidiaries (other than a wholly-owned
Subsidiary) to declare or pay any dividend on any shares of its capital stock
(other than dividends payable in shares of its capital stock) or purchase,
redeem or acquire for value (other than in exchange for shares of the
Borrower's or such Subsidiary's capital stock) any shares of the Borrower's or
such Subsidiary's capital stock of any class if, immediately after giving
effect thereto, a Default shall have occurred and be continuing.
Section 7.3 Transactions with Affiliates. The Borrower will not make or
permit any Subsidiary to make any sale to or purchase from, undertake any sale-
leaseback transaction with, make payment for services rendered by or enter into
any other transaction with, any Affiliate, or any officer, director or holder
of five percent (5%) or more of any class of stock of any Affiliate, unless in
each case, such sale or purchase is made or such services are rendered or such
other transaction is effected on terms and conditions at least as favorable to
the Borrower or such Subsidiary as the terms and conditions which would apply
in a similar transaction with a person other than such Affiliate, officer,
director or shareholder; provided, however, that the Borrower may continue to
provide goods or services to ABF Freight System, Inc., a Delaware corporation
("ABF"), which is a Subsidiary of ABC, pursuant to terms substantially similar
to previous transactions with ABF which do not adversely affect the financial
position of the Borrower in any material respect.
Section 7.4 Disposition of Receivables. The Borrower will not, and will
not permit any of its Subsidiaries to sell, discount or otherwise dispose of
notes, accounts receivable or other obligations owing to it, with or without
recourse, except to the Bank or to which the Bank consents, which consent shall
not be unreasonably withheld. The Bank will not unreasonably withhold its
consent pursuant to this Section 7.4 and, in connection with any transaction so
consented to will release any Liens it may hold, if necessary.
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<PAGE> 35
Section 7.5 Other Business. The Borrower will not, and will not permit
any of its Subsidiaries to engage in any business other than substantially the
business in which it is presently engaged.
Section 7.6 Loans, Advances and Investments. The Borrower will not, and
will not permit any of its Subsidiaries to make or permit to remain outstanding
any loans or advances to or investments in any Person, except Permitted Loans
and Investments.
Section 7.7 Corporate Transactions. The Borrower will not, and will not
permit any of its Subsidiaries to consolidate with or merge with or into any
other corporation or partnership or sell, lease, transfer or otherwise dispose
of all or substantially all of its Property.
ARTICLE VIII
REMEDIES
Section 8.1 Events of Default. Each of the following shall be an "Event
of Default" for purposes of this Agreement:
(a) The Borrower fails to pay when due any amount of principal or interest
under the Note, or any other amount payable pursuant to this Agreement or any
other Loan Document;
(b) Any representation or warranty made by the Borrower in the Loan
Documents proves to have been inaccurate at the time it was made or deemed made
in any material respect;
(c) The Borrower fails to perform any term, covenant (other than the
covenants contained in Section 6.7 and Article VII hereof) or condition in the
Loan Documents and such failure continues for a period of 30 days or more after
the earlier of (i) the Borrower's knowledge of such failure or (ii) notice of
such failure from the Bank;
(d) The Borrower violates any covenant contained in Section 6.6 or Article
VII hereof;
(e) The Borrower or any of its Subsidiaries suffers a judgment against it
which, within 30 days from the date such judgment is entered, shall not have
been discharged or execution thereof stayed pending appeal unless (i) such
judgment is adequately covered by insurance or (ii) adequate reserves with
respect to such judgment have been established and the aggregate amount of all
such judgments not adequately covered by insurance is not in excess of
$2,500,000;
(f) The Borrower or any of its Subsidiaries (i) admits in writing its
inability to pay its debts generally as they become due or is generally not
paying its debts as they become due; (ii) files a
-31-
<PAGE> 36
petition in bankruptcy or a petition to take advantage of any insolvency act or
other act for the relief or aid of debtors; (iii) makes an assignment for the
benefit of its creditors; (iv) consents to or acquiesces in the appointment of
a receiver, liquidator, fiscal agent or trustee of itself or of the whole or
any substantial part of its property and assets, or (v) files a petition or
answer seeking for itself, or consenting to or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the Federal bankruptcy laws or any other
applicable law, or fails to deny the material allegations of or to contest any
such petition filed against it;
(g) A court of competent jurisdiction enters an order, judgment or decree
appointing a receiver, liquidator, fiscal agent or trustee of the Borrower or
any of its Subsidiaries, or of the whole or any substantial part of its
Properties, or a petition is filed and not dismissed within sixty (60) days
against the Borrower or any of its Subsidiaries, seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the Federal bankruptcy laws or any other applicable law
adjudicating the Borrower or any of its Subsidiaries, a bankrupt without the
consent or acquiescence of the Borrower or such Subsidiary;
(h (i) ABC or any of its Subsidiaries shall sell any shares of the common
stock of the Borrower owned by ABC or such Subsidiary as of the date of this
Agreement (as reflected in the Borrower's S-1 Prospectus filed with the SEC on
July 3, 1991), or (ii) ABC, any employee stock option plan of the Borrower, and
officers and directors of the Borrower, shall collectively own, directly or
indirectly, less than 40% of the issued and outstanding common stock of the
Borrower;
(i Default in the payment when due, whether by acceleration or otherwise,
of any other Debt of the Borrower or any of its Subsidiaries exceeding
$2,500,000 individually or in the aggregate, or default in the performance or
observance of any obligation or condition with respect to any other Debt of the
Borrower or any of its Subsidiaries exceeding $2,500,000 individually or in the
aggregate, if the effect of any such default is to accelerate or (with the
giving of notice or lapse of time or both) permit the acceleration of the
maturity of any such Debt;
(j (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan
and such prohibited transaction shall continue uncorrected for 10 days after
notice of the existence of such prohibited transaction has been given to the
Borrower by the Department of Labor, the Internal Revenue Service or any other
Person, (ii) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a
Reportable Event shall occur with respect to, or proceedings by the PBGC shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate any Plan, which Reportable Event or institution of
proceedings is, in the reasonable opinion of the Bank, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, and, in the case of
a Reportable Event, the continuance of such Reportable Event unremedied for ten
days after notice of such Reportable Event pursuant to
-32-
<PAGE> 37
Section 4043(a), (c) or (d) of ERISA is given or the continuance of such
proceedings for ten days after commencement thereof, as the case may be, (iv)
any Plan shall terminate for purposes of Title IV of ERISA, or (v) any other
event or condition shall occur or exist with respect to a Plan and in each case
in clauses (i) through (v) above, such event or condition, together with all
other such events or conditions, if any, could subject the Borrower to any tax,
penalty or other liabilities which in the aggregate would be material in
relation to the business, operations, property or financial or other condition
of the Borrower;
(k the occurrence of a Material Adverse Change; or
(l the Borrower shall fail to cure any payment default under a Defaulted
Lease within 90 days.
Section 8.2 Optional Acceleration of Maturity. Except as provided in
Section 8.3 hereof, upon the occurrence and during the continuance of an Event
of Default, the Bank shall have the right by notice to the Borrower to (i)
terminate the Commitment and (ii) accelerate the maturity of the Note and all
liabilities and obligations of the Borrower under the Loan Documents, and, at
the option of the Bank, to declare such obligations due and payable forthwith,
and all such liabilities and obligations (including without limitation all
contingent obligations of the Borrower in connection with Letters of Credit)
shall thereafter be due and payable in full by the Borrower to the Bank,
without presentment, demand, protest, notice of intent to accelerate, or any
other notice of any kind, all of which are hereby expressly waived by the
Borrower.
Section 8.3 Automatic Acceleration of Maturity. Upon the occurrence of
any of the Events of Default specified in Sections 8.1(f) and 8.1(g) hereof
with respect to the Borrower, the Commitment shall automatically and
immediately terminate, and all liabilities and obligations of the Borrower
under the Loan Documents (including without limitation all contingent
obligations of the Borrower in connection with Letters of Credit) shall be
automatically and immediately due and payable in full, without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration, or any
other notice of any kind, all of which are hereby expressly waived by the
Borrower.
Section 8.4 Remedies. Upon the occurrence and during the continuance of
an Event of Default, the Bank may proceed to protect and enforce rights by suit
in equity or action at law, whether for the specific performance of any term
contained in this Agreement, the Note, or any other Loan Document, or for an
injunction against any breach of any such term or in aid of the exercise of any
power granted in this Agreement, the Note, or any other Loan Document, or may
proceed to enforce the payment of the Note or to enforce any other legal or
equitable right, or may take any one or more of such actions. No right, power
or remedy of the Bank conferred in the Loan Documents, or now or hereafter
existing at law, in equity or admiralty, by statute or otherwise, shall be
exclusive,
-33-
<PAGE> 38
and each such right, power or remedy shall, to the full extent permitted by
law, be cumulative and in addition to every other such right, power or remedy.
Section 8.5 Collateral Account. The Borrower hereby agrees that any funds
collected under Sections 2.9, 8.2 and 8.3 hereof as a result of contingent
obligations of the Borrower under outstanding Letters of Credit shall be held
by the Bank in a deposit account as cash collateral securing the Indebtedness
(including without limitation such contingent obligations) and shall be subject
to withdrawal only by the Bank to satisfy such Indebtedness (including without
limitation such contingent obligations). The Borrower hereby grants to the
Bank a Lien upon, and right of set-off against the balance from time to time in
such account to secure the Indebtedness. In the event any outstanding Letter
of Credit expires undrawn, and provided no Default or Event of Default is then
existing, and, in the case of funds collected under Section 2.9 hereof, if no
Borrowing Base deficiency would result, the Bank shall release to the Borrower
proceeds of such account equal to the undrawn amount of such expired Letter of
Credit.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. All notices and other communications provided for
herein shall be delivered or mailed and addressed as follows:
To the Borrower: Treadco, Inc.
1101 South 21st Street
Fort Smith, Arkansas 72901
Telephone: (501) 788-6400
Telecopy: (501) 788-6486
Attention: John R. Meyers, President
with a copy to:
Arkansas Best Corporation
3801 Old Greenwood Road
Fort Smith, Arkansas 72903
Telephone: ( 501) 785-6157
Telecopy: (501) 785-6124
Attention: David E. Loeffler, Vice President-
Chief Financial Officer
-34-
<PAGE> 39
To the Bank: Societe Generale,
Southwest Agency
4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Telephone: (214) 979-2777
Telecopy: (214) 979-1104
Attention: Mr. Louis Parkerson Laville, III
Vice President
and
Ms. Terri Jones
Operations
or addressed to any party at such other address as such party shall hereafter
furnish to the other party in writing. Such notices or communications shall be
deemed to have been duly given when so delivered or, if mailed, five days after
deposited in the U.S. Mail, certified, first class, postage prepaid, or in the
case of notice by telecopy, when received in a clear and comprehensible fashion
addressed as set forth above; provided that all payments made to the Bank and
all requests for Advances under Article II hereof shall be deemed to have been
made at such time as such payments or requests are actually received by the
Bank.
Section 9.2 Amendments and Waivers. This Agreement may not be amended
except in writing executed by the Bank and the Borrower. Each waiver of any of
the terms or conditions hereunder shall be in writing and executed by the Bank.
Section 9.3 Participations. The Bank may sell participations to one or
more banks or other financial institutions (each, a "Participant") in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances and the
Note) provided, however, that the Bank will give the Borrower prior notice of
such participation, identifying the Participant, and (i) the Bank's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) the Bank shall remain solely
responsible to the Borrower hereto for the performance of such obligations,
(iii) the Bank shall remain the holder of the Note for all purposes of this
Agreement, and (iv) the Borrower shall continue to deal solely and directly
with the Bank in connection with the Bank's rights and obligations under this
Agreement. The Borrower hereby agrees that Participants shall have the same
rights under Sections 2.5, 2.7, 2.11 and 9.9 hereof as the Bank to the extent
of their respective participations.
-35-
<PAGE> 40
Section 9.4 Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
Section 9.5 Successors and Assigns. This Agreement and the other Loan
Documents shall inure to the benefit of the Bank and its successors and assigns
and shall be binding upon the Borrower and its successors and assigns. The
Borrower's obligations and rights under this Agreement and the other Loan
Documents may not be assigned by the Borrower.
Section 9.6 Severability. If any provision of this Agreement is rendered
or declared invalid, illegal or ineffective by reason of any existing or
subsequently enacted legislation or by decree of a court of competent
jurisdiction, such legislation or decree shall not impair, invalidate or
nullify the remainder of this Agreement which shall remain in full force and
effect.
Section 9.7 Interpretations. In the event that any representations,
warranties, covenants or agreements contained in this Agreement directly
conflict with provisions relating to the same subject matter in any of the Loan
Documents, the provisions of this Agreement shall be controlling for all
purposes.
Section 9.8 Usury Not Intended. No provision of this Agreement, the Note
or any other Loan Document executed in connection herewith shall require or be
construed to require the payment or permit the charging or collection of
interest in an amount or at a rate in excess of the maximum non-usurious rate
under applicable law. If any excess of interest in such respect is hereby
provided for, or shall be adjudicated to be so provided, in the Note or
otherwise in connection with the Advances, the provisions of this Section 9.8
shall govern and prevail, and neither the Borrower nor the sureties,
guarantors, successors or assigns of the Borrower shall be obligated to pay the
excess amount of such interest, or any other excess sum paid for the use,
forbearance or detention of sums loaned pursuant hereto. In the event the Bank
ever receives, collects, or applies as interest any such sum, such amount which
would be in excess of the maximum non-usurious rate shall be applied as a
payment and reduction of the principal indebtedness evidenced by the Note; and,
if the principal amount of the Note has been paid in full, any remaining excess
shall forthwith be paid to the Borrower. All amounts paid in connection with
this Agreement and the Note which would under applicable laws be deemed to be
"interest" shall, to the extent permitted by such applicable laws, be
amortized, prorated, allocated and spread throughout the full term of this
Agreement and the Note.
Section 9.9 Indemnification. The Borrower hereby agrees to indemnify the
Bank, and each affiliate thereof and its directors, officers, employees, agents
and counsel ("Indemnified Persons") from, and discharge, release, and hold each
of them harmless against, any and all losses, liabilities, claims or damages to
which any of them may become subject, that arise out of, result from, or relate
to (i) any actual or proposed use by the Borrower of the proceeds of any
Advance, (ii) any breach
-36-
<PAGE> 41
by the Borrower of any representation, warranty, covenant, or other provision
of this Agreement or any other Loan Document, (iii) any Environmental Claim,
Environmental Permit, requirement of Environmental Laws, or any Release or
threatened Release of Hazardous Substances, concerning or relating to the
present or previously-owned or operated properties, operations, or business of
the Borrower, (iv) any investigation, litigation or other proceeding (including
any threatened investigation or proceeding) relating to the foregoing, and the
Borrower shall reimburse each Indemnified Person upon demand for any reasonable
out-of-pocket expenses (including legal fees) incurred in connection with any
such investigation, litigation or other proceeding, other than any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Indemnified Person.
Section 9.10 Confidentiality. The Bank may furnish any information
concerning the Borrower in the possession of the Bank from time to time to
participants (including prospective participants); provided that, prior to any
such disclosure, the participant or proposed participant shall agree in writing
to preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Bank.
Section 9.11 Survival of Certain Provisions. Notwithstanding anything
herein or in any other Loan Document to the contrary, the provisions set forth
in Sections 2.6, 2.7, 2.11 and 9.9 hereof shall survive the payment in full of
the Indebtedness and the termination of this Agreement.
Section 9.12 Governing Law. THIS AGREEMENT, THE NOTE AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS. PURSUANT TO ARTICLE 15.10(B) OF CHAPTER
15 ("CHAPTER 15") OF THE TEXAS CREDIT CODE, THE PARTIES HERETO EXPRESSLY AGREE
THAT CHAPTER 15 SHALL NOT APPLY TO THIS AGREEMENT OR TO ANY ADVANCE, NOR SHALL
THIS AGREEMENT OR ANY ADVANCE BE GOVERNED BY OR BE SUBJECT TO THE PROVISIONS OF
CHAPTER 15 IN ANY MANNER WHATSOEVER.
PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN
AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS $50,000 IN
VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING AND SIGNED BY
THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE.
THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE
PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT,
AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED
INTO THE LOAN
-37-
<PAGE> 42
AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
EXECUTED AS OF THE 30TH DAY OF SEPTEMBER, 1997.
TREADCO, INC.
/S/ DAVID E. LOEFFLER
----------------------
DAVID E. LOEFFLER
VICE PRESIDENT - CFO
SOCIETE GENERALE, SOUTHWEST AGENCY
/S/ LOUIS P. LAVILLE, III
-------------------------
LOUIS PARKERSON LAVILLE, III
VICE PRESIDENT
-38-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TREADCO,
INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000876948
<NAME> TREADCO, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 23,440,873
<ALLOWANCES> 1,785,345
<INVENTORY> 28,288,924
<CURRENT-ASSETS> 61,259,367
<PP&E> 49,151,335
<DEPRECIATION> 16,754,773
<TOTAL-ASSETS> 107,316,347
<CURRENT-LIABILITIES> 33,538,886
<BONDS> 13,810,320
0
0
<COMMON> 50,723
<OTHER-SE> 59,766,563
<TOTAL-LIABILITY-AND-EQUITY> 107,316,347
<SALES> 121,116,399
<TOTAL-REVENUES> 121,116,399
<CGS> 122,724,524
<TOTAL-COSTS> 122,724,524
<OTHER-EXPENSES> 735,892
<LOSS-PROVISION> 1,920,463
<INTEREST-EXPENSE> 974,022
<INCOME-PRETAX> (2,344,017)
<INCOME-TAX> (822,360)
<INCOME-CONTINUING> (1,521,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,521,657)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
